If it were not such a serious distraction, the tendency of policy analysts to focus so greatly on “payment reform” -- capitation, global payments, and bundling -- as an answer to increasing health care costs would be all right. But it is not all right. It is not all right because the underlying premise behind payment reform is that over-treatment of patients is at the heart of rising health care costs. While over-treatment exists, it is hard to conclude that it is the area for greatest possible progress in controlling costs. Accordingly, if we focus on this “remedy,” we will fail to direct attention to other parts of the cost equation, parts that could be more important in bending the cost curve.
What are the determinants of high health care costs in America?
One part of the problem is demographic, a large increase in the number of elderly, who end up needing hospitalization or treatment for chronic illnesses; the arrival of the baby-boomer cohort at the age of hospitalization; and the pending arrival of a sedentary next generation who will suffer obesity and the sequelae of that malnourishment.
A second part of the problem is the lack of effective primary care. Many people have not had access to primary care. Those who do have discovered that primary care doctors are often forced into a triage role: They spend the proverbial “18 minutes” with each patient, an inadequate amount of time, leading to excessive referrals to higher paid specialists.
A third part of the problem is application of “the rule of rescue” in American medicine, the tendency to spend larges amounts of money in high level tertiary and quaternary treatment, well beyond any rationale estimate of the value of a human life.
A fourth problem is that the unit costs of what we provide are high. Starting with doctors, who need to recover the high cost of medical education in their salaries, to medical equipment and supplies and drugs, to the physical facilities in which care is offered. Some of these high costs are simply the result of being a high-income country; some are structural in that they reflect regulatory requirements; and some are market-power driven.
A fifth problem is defensive medicine, the tendency by doctors to order unnecessary tests or conduct unnecessary procedures because they fear being sued for malpractice if things go awry. (Note: This, not the judgments awarded in courts, is the real cost of our malpractice system.)
A sixth problem is the degree of harm caused by doctors and hospitals. The number of hospital-acquired infections, for example, is excessive, leading to further morbidity in the hospital setting, along with the associate costs of treating patients for secondary diseases that could have been avoided.
A seventh problem is likely the inefficiency of a multi-payer system, compared to the simpler administrative system that could exist with a single payer. I say “likely” because there are other inefficiencies often associated with single payer systems, not the least of which is the rationing that results and the emergence of a parallel, private system of insurance and care for those who can afford it.
Finally, an eighth problem is the incentive given in a fee-for-service payment system to over-treat patients, in that a doctor’s income is based to some extent on the number of steps taken, not the results of treatment.
If we were being rational and rigorous about policy prescriptions, we would rank order these causes and determine the costs and benefits of policies that might offset them. For example, we cannot change demographic patterns, but it could make sense to introduce public health programs to promote exercise and proper nourishment. We could change the compensation system for primary care doctors so they could spend more time with patients. We could subsidize physician education so they wouldn’t have to earn so much to pay off loans. We could reform malpractice laws to reduce defensive medicine. And we could certainly engage in full-scale process improvement training of doctors and implementation of those techniques in hospitals to reduce the extra medical costs associated with harming patients. (Those of us who have done the latter have
demonstrated conclusively the cost savings, not to mention the mortality and morbidity benefits.)
But, our public policy leaders have not done this. Instead, they assert that pricing-based over-treatment is the key problem, and they offer capitated rate plans and bundled payments as the solution. If you look closely, you will find that most of those proposals come from payers, either insurance companies who have a corporate desire to shift risk to providers or government officials who are trying to reduce appropriations. Or from economists, who have a tendency to simplify market behavior and blame everything on pricing regimes. As I have said, when you have a hammer, everything looks like a nail.
We shouldn’t dismiss a change in the payment system just because it might benefit the insurers or the government, but we also shouldn’t adopt it just for that reason -- or because it fits into economists’ idealized models. Instead, we should determine how big a portion of the over-treatment problem comes from the payment system versus other causes. And then we should rigorously review the experience of such regimes and evaluate their costs and benefits. We should also determine how practical it is to implement a new pricing regime. For example, let’s look at the business and clinical relationships of the primary, secondary, and tertiary care doctors who will have to jointly share risk. What would the internalized system of transfer payments look like, and
how would it be decided? It is often the case that these analyses are lacking.
A case in point is offered by Ezekiel Emanuel in the last of series of op-eds he has published in the New York Times. This one is called, “
Saving by the bundle.” He offers bundled payments for chronic diseases as a partial solution to Medicare cost increases, and the article makes some good points. But is there rigorous support for what he proposes? He notes:
For two decades Medicare has been experimenting with bundled payments. Since 2009, Medicare has been using the Acute Care Episode bundled payment program to cover 37 cardiovascular and orthopedic procedures. While there has not been a definitive evaluation, preliminary data suggest savings of up to 10 percent and improved quality of care. Unfortunately, the program does not cover rehabilitation and other post-discharge services. Worse, it is voluntary and only a few hospitals are participating.
As a public policy recommendation, this would get a “D” in my classroom. Why? In reverse order, we have a self-selection bias in our sample; an incomplete assessment of all treatment-related costs and benefits; preliminary data not yet subject to peer review; and 20 years of experiences that has not created momentum for change.
The Times editorial staff is also on the bandwagon in an editorial entitled, “
Fixing Medicare.” Endorsing full capitation, they say:
The solution, most experts agree, is to have Medicare pay doctors and other health care providers fixed sums to manage a patient’s care and then let doctors decide which services are truly necessary.
The editors recognize one possible downside of this strategy, but they brush it off in one sentence, offering no consideration of the regulatory and oversight costs involved:
Close monitoring would be needed to ensure that doctors don’t deny medically important services to improve their bottom lines.
(They fail to mention another impediment: To manage care in this fashion, the patient must be seen by a closed network, whose providers share in the risk pool. That is all right, but a major issue facing Congress will be whether it wants to
take provider choice away from the general body of American elders.)
I think it can be demonstrated that capitation and bundling can work well in certain settings. For example, treatment of “dual-eligible” people (those on both Medicare and Medicaid) seems to
work better and be less expensive when care is managed under a capitated contract arrangement. But, even there, we have to ask, “Better than what?” Better than a completely disorganized system of care for poor elderly people who are shunted from provider to provider, often without a primary care doctor to advocate for them. Still worth doing, for sure, but let’s not extrapolate from this extreme case to the general population.
Being one of those aforementioned economists, I have no aversion to an assumption that price patterns matter. But when you make policy, you don’t just proceed on that basis. After all, most of our economy runs on a fee-for-service basis, and we don’t suggest that government intervention is necessary to change that to create more efficiency and higher quality. With some exceptions, buyers and sellers in those markets prefer a fee-for-service approach, Yes, health care is different. But that is no excuse to ignore the full range of diseconomies in health care, figure out which ones matter the most, and go from there. If we do this wrong, we will find out that “payment reform” is not reform at all.