Conflicting Economic Models
I recently questioned if a capitalist economic model is best for healthcare. This is not a new notion; even in the United States we have used other models. Perhaps the opposite to a capitalist model would be a governmental model, such as the Veterans Administration system. This system provides healthcare to eligible veterans of the Armed Services at no additional charge to the individual. From a purely clinical perspective, most studies suggest VA medical care is as good as, if not better than medical care in the private sector. Most of the complaints have been directed toward service availability. We continue to fight wars, and generate more eligible individuals, but commonly fail to fund the back-end costs of caring for these veterans. This is the major weakness of governmental systems—funding depends on the will of the legislature and other priorities for taxpayer dollars will always be competing for that funding.
The evident weaknesses of unrestrained capitalism and pure governmental healthcare have resulted in a variety of hybrid models. Perhaps we should call these mercantile systems, where there is some regulation of the “system” designed to curb costs. This seems to be “where the action is,” so I want to look at a couple of these.
The Wall Street Journal recently reported the administration is considering requiring providers to tell patients of all medical costs before starting treatment in the name of transparency. One part of the effort appears to be forcing insurance companies to disclose the negotiated rates they pay for care, as opposed to the “sticker price” you get if you pursue the question on your own. The notion seems to be that disclosing the “price” will create price competition for business. A similar proposal to disclose drug pricing in direct-to-consumer advertising has been made, but an analysis points out it is more difficult in practice that it might seem. It is also unknown if this would change patient behavior.
Washington State has taken a different approach. They have just enacted legislation that will provide a universally available, tiered public insurance alternative, beginning in 2021. The plans will cover standard services and be administered by existing third party administrators. The plans will cap provider reimbursement, which is expected to make them cost about 10% less than commercial insurance plans with comparable coverage. “Backers acknowledge the rate caps at the heart of the plan risk creating coverage gaps in rural areas. But they hope to persuade doctors to accept doctors to accept lower rates by bringing the state’s purchasing power to bear.” To minimize risk, the initial proposal is to cap rates at 160% of Medicare rates.
Lastly, CMS has announced that it plans to start “direct contracting” for primary care services next year. In brief, they propose a capitated model for small primary care practices, and 50% two-sided risk model for larger groups, and a global option for full risk sharing. What all of these models propose is making the provider group sensitive to the costs of care by taking on insurance risk. Of course, the devil is in the details, which aren’t yet available. Previous experience, though, suggests global savings are very modest, perhaps because the systems that enter these contracts have already shifted a lot of care from emergency rooms and hospital beds to outpatient offices. [In this regard it is worth noting CMS is also being besieged by hospital groups that want current readmission penalties adjusted for the social determinants of health.]
All these trends have the same implication for healthcare providers—payers want to force you to own the costs of your care. This trend has been summarized by Michael Chernew, Professor of Health Care Policy at Harvard. He notes healthcare costs have grown about 2% faster than income in the U. S. Payers have tried increasing co-pays to make the patient absorb more of the costs, but this has not curbed growth much. Now efforts are turning toward making the provider responsible for controlling costs as well as for outcomes. As he puts it succinctly, “Value is simply the sugar that makes the medicine go down. This is about risk transfer…You may not have gone to medical school to learn how to save money, but increasingly, the delivery system is put in the situation where they need to save money or at least control the rate of growth and spending.”
He notes providers must do two things in response to this trend: get bigger and focus on keeping the patient. He also notes we don’t know what works well, so there will continue to be experiments, both clinical and financial. He does not say it but is seems clear that just putting your head down and going to work is not the answer. Physicians aren’t likely to become unemployed, nor are they likely to be, as a friend puts it, “In a tar-paper shack on the edge of the river by Christmas.” But if we want clinical issues to stay front and center, we need to make the linkage between good care and good financial outcomes—after all, that is what will let us keep the patients. It was that way in “the good old days” and probably will be in the future, too.
28 May 2019
 Longman P. Five Myths About VA Health Care. The Washington Post, 13 April 2018. Accessed 28 May 2019 at https://www.washingtonpost.com/outlook/five-myths/five-myths-about-va-health-care/2018/04/13/e5834d1e-3d9a-11e8-974f-aacd97698cef_story.html?utm_term=.e2c8bf1e25c7.
 Armour S. White House Eyes Disclosure of Health Prices. The Wall Street Journal, Thursday, 16 May 2019, p. A4.
 Appleby J, Lupkin S. Price Check on Drug Ads: Would Revealing Costs Help Patients Control Spending? Kaiser Health News, 9 May 2019. Accessed 17 May 2019 at https://khn.org/news/price-check-on-drug-ads-would-revealing-costs-help-patients-control-spending/
 James T. Washington State to Offer Public Health Insurance Plans, Regardless of Income, by 2021. Time. 12 May 2019. Accessed 14 May 2019 at http://time.com/5587835/washington-private-health-insurance/
 Luthi S. CMS to Launch New Direct-Contracting Pay Models in 2020. 22 April 2019. Accessed 28 May 2019 at https://www.modernhealthcare.com/payment/cms-launch-new-direct-contracting-pay-models-2020?utm_source=modern-healthcare-alert&utm_medium=email&utm_campaign=20190422&utm_content=hero-readmore.
 https://www.aha.org/news/headline/2019-03-12-study-social-risk-factors-linked-hospital-readmissions-penalties. Accessed 28 May 2019.
 Chernew M. Curbing Health Care Spending: The Provider’s Role. NEJM Catalyst. Accessed 20 February 2019 at https://catalyst.nejm.org/videos/curbing-health-care-spending-growth/.
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