Thursday, July 22, 2010

The insurers' dilemna

This has to be a very difficult time for insurance companies in Massachusetts. Notwithstanding that they are non-profits, they are under a lot of scrutiny with regard to reserve margins and profitability. Much of this is unfair, but I think that is just a sign of the times. Hospitals face a similar issue, too. Doctors are certainly next in line.

But the Massachusetts insurers have an additional problem. As we have discussed here, they have been participants in creating a very large disparity in payment rates among hospitals, rate differentials based mainly on providers' market power. They are now under pressure to limit rate increases to hospitals, but the ones that come up for renewal are not necessarily the ones that have received higher rates.

Nonetheless, insurers are telling those who are up for renewal that they should expect no rate increase at all, or at best, an increase well below the rate of medical cost inflation. Those hospitals, by definition, are the ones without market power. So if the insurers hold them to low rate changes, the disparity between the have's and the have-not's will grow. This enhances the market power of their competitors, allowing them to poach doctors into their networks and gain still more market power. This increases the percentage of patients who go to the high-rate providers, aggravating the overall health care cost situation.

Thus far, I have seen no effort by insurers to cut this Gordian knot. One company promotes capitation, or global payments, as an answer to the problem. But capitation based on embedded reimbursement patterns does not solve the problem of rate differentials. Indeed, it perpetuates the problem.

Transparency with regard to rates could create a moral imperative that would help lead to a shift in the negotiations that would move things in the right direction. I see no move on the part of the insurance carriers, either individually or collectively, to ask the state to publish existing rates.

Transparency with regard to quality and safety could help create a marketplace for insurance products based on outcomes rather than market power. I see no move on the part of the insurance carriers, either individually or collectively, to ask the state to publish useful data on this front -- or to use their own commercial authority to require such publication as part of their contracts with providers.

Properly constructed and implemented administrative rate-setting likewise could help resolve disparities over time. I see no move on the part of the insurance carriers, either individually or collectively, to ask the state to engage in rate-setting.

So, while I am sympathetic to the unfair attacks on insurers that are part of the political environment, I am left to wonder. What is it that they are in favor of to help resolve an uncontroverted problem, a problem that itself aggravates the very situation facing the insurance industry?


Barry Carol said...

I think the insurers may be reluctant to provide leadership on issues like these because they perceive a need for political cover. In the same vein, they probably feel that they can’t refuse to pay for any service, test or procedure that Medicare pays for. However, if Medicare stopped paying for certain things deemed wasteful or not cost-effective, private insurers would likely be more than willing to follow Medicare’s lead because they will have political cover. In Massachusetts, I think the regulators need to take the lead on price and quality transparency including disclosure of hospitals’ contract reimbursement rates. That way, the insurers can say it wasn’t our idea. The regulators made us do it. In the end, the system will be net better off from a cost standpoint, in my opinion.

Anonymous said...

At least on the quality front, what measures would you suggest that could have such an industry wide impact that payment could be based on that metric alone?

I know you are way too smart to suggest that line infections, etc., are the way to go exclusively, but the variety of illness is so great, the science of measurement so crude, and the dollars at risk is so great, that using quality alone is inadquate. In my book, they would an inconsequenital leveler, and in the end, transparency and administrative pricing are the least in 2010 give or take.

Wouldnt you agree?

Anonymous said...

By chance, this morning I was searching your blog for remarks by Don Berwick. Here are 2 excerpts which directly bear on your current subject (dates of your old posts follow the quote):

Places which have broken the back of supply-driven demand..... evidence high degrees of cooperation between medical groups and hospitals, among hospitals, and with payers. In every one of those communities, people in positions of responsibility both inside and outside of the health care system have chosen to exercise that responsibility. (BCBSMA Conf; 10/30/09)

Like the villagers, rational health care stakeholders are eroding the common good simply by doing what makes sense to each of them – separately. In the short term, we each win. But, in the long term, we all lose.
.......My friends, we can spend our days ahead fighting for our piece of the pie. We have plenty of role models for that. But, that’s for summer camp and the schoolyard; not for here. Not for this real and fragile world. Not for the Commons. Not when there is only one pie, and it is all we have and all we will ever have.... We can wait for the rules to be written by others and for the laws on tablets chiseled by others to rescue us, but those rules will be less wise than the ones we can write, and those tablets will be, not our salvation, but weights upon our spirit. (Dr. Berwick, NQF, 12/8/09)

Unfortunately, his remarks have evidently fallen upon deaf ears. Once again, as an outsider I find it rather shameful that Boston the medical mecca cannot do better - particularly with the eyes of the nation on it.

nonlocal MD

Anonymous said...

I would think you could start with some generally acknowledged, important, commonly collected metrics.

Cardiology doc said...

The fundamental problem is that the free market system has been so undermined by the present system that it is non-functional. The large proportion of patients would likely choose a less expensive hospital if they knew that
1) it delivered equal or even better results than the expensive alternative
2) it involved a lower expense to the patients themselves.

The problem is that patients generally are unaware of issue no. 1 and do not have to deal with issue no. 2 since the cost to them is the same, which ever hospital they choose.

Since neither insurers nor the hospitals involved will correct the situation, it is up to the legislature to pass regulations that require transparency of results, transparency of costs and a direct patient benefit for choosing the less expensive equivalent (or better) care.

Do we have any legislators bold enough to propose such legislation? Regretfully not so far.

Health Plan Exec said...

Actually, Dr. Levy, the health plans in Massachusetts have been urging more transparency for years, but we have not had as much success as we like (I work for a health plan, so I know some of the history). Health plans urged that transparency be part of the last Massachusetts health care reform, and the result was the creation of the Health Care Quality and Cost Council, which was supposed to increase transparency on both cost and quality. The health plan representatives pushed the HCQCC to move as rapidly as possible, but progress has been slow. With you as an exception, hospitals have not shown great enthusiasm for transparency.
I agree with another commenter (and Dr. Berwick) that it is a time for cooperation and responsibility among all concerned.
It couldn't hurt...

Anonymous said...

Insurers HAVE caused this problem not just with hospital disparities, but also with doctor rate disparity. Physician rate disparity is very much a part of how they have warped the market.

You are kind to show a modicum of sympathy for insurers. I have none whatsoever and their behavior (exacerbating the problem and widening the gap) is a good example of why.

Harold D. Miller said...

The BCBSMA Alternative Quality Contract (aka "global payment") doesn't immediately solve the rate differential problem, but it provides one of the best pathways out of it. From the hospital's perspective, the real issue is not how the payment rate compares to another hospital's, but whether the payment rate is adequate to cover the costs of high-quality care and provide an adequate operating margin.

There are many examples of other industries where the lower-price providers succeeded where the higher-price providers did not (e.g., the auto industry). A well-designed global payment structure gives a creative hospital or health system the opportunity to increase its margin without increasing total spending; e.g., helping a patient with a chronic disease stay well and stay out of the hospital costs the hospital money under fee-for-service but could increase the hospital's margin under global payment.

Moreover, global payment makes transparency much easier than it is today, because you can see how much one system costs to care for a population of people vs. another in a single number, rather than via a complex combination of inpatient and outpatient prices or chargemasters.

What is really missing from the discussion is how the benefit structures for consumers need to change so that consumers become appropriately sensitive to price differentials. The current structure of co-pays, co-insurance, and high deductibles doesn't do that other than for the lowest-cost services, and there, they're as likely to discourage the consumer from using important services altogether (e.g., the medications or screening visits that will help them avoid unnecessary hospitalizations) rather than steering them to lower-cost providers.

Changes in payment systems and levels are necessary but not sufficient; consumers (via their employers and health plans) also have to change the way they buy health care and manage their health. It's not just up to health plans or government to push for lower prices; consumers have to do it directly. The health plan structures that provide appropriate information and incentives for consumers to choose higher-value providers and services have shown that they can hold down costs by instituting genuine competition on both quality and price.