July 31, 2009

Controlling Healthcare Cost Inflation (updated review)

(Update Oct 09: Note that when this post was written at the end of July, not all of these reform ideas were under serious consideration. Even though all of these ideas are now being addressed or considered, readers should still find interesting pieces in this post. Even this short summary post has some specific ideas, and the links have specific detail and how-to-make-it-work structures based on experience and considerable review and discussion.)

The best health care reforms to reverse the unsustainable cost inflation trend (this is a updated version of my previous review post on countering healthcare inflation):

  • Setting up new structure and strong incentives for preventative care and health improvement programs -- wellness, early detection, and maintenance -- with emphasis on the preventive strategies that have the greatest long-term cost-savings (some preventive care has significant net cost-savings over long time periods, some does not; we presume common sense (applying the results of cost-effectiveness analysis such as this) is used in setting up screening programs). Employees would be given mandated time off from work for routine checkups, and could earn insurance discounts or rebates. Preventative and maintenance care that is known to have high-payoff, such as one-time colonoscopy or detecting and then keeping high blood pressure under control (with diabetes screening, etc.), must have a $0 co-pay and not be subject to any deductible, so that follow-through has no cost for patients. <> Incentives should reward providers/organizations that accomplish good long-term outcomes in improving or maintaining patient health -- for instance, capitation (fixed monthly) payments for maintaining diabetic patients within defined levels of health over time, with annual bonus payments for successful maintenance. Health Support Organizations could be paid per client for health maintaining programs open to all individuals, and earn profits through successful long term results of keeping clients healthy or improving health, as measured periodically by weight and blood chemistry (they would receive a per-client annual bonus payment for each client that maintains their health level as measured by established criteria.) Early and effective treatments for certain conditions control overall national health care costs over long time periods better than many other cost-reduction strategies, especially for widespread problems such as undetected diabetes or hypertension.

  • Creating extensive public information and disclosure requirements on the effectiveness of particular treatments that are clear to patients -- aka "comparative" or "evidence-based" information given in real-time, during health care visits. This might include, for many treatments, a simplified disclosure sheet with a multiple-choice question or two at the end for the patient to correctly answer (or have re-explained) on the statistical findings about a given treatment before the treatment can be delivered. Along with a disclosure on patient out-of-pocket costs, this allows patients to participate in choosing what is a worthwhile effort.

  • If the insurance system lacks pay-for-outcome (see next point below), then experimental or unreliable treatments could include cost-sharing: Gradually creating graduated co-insurance requirements for certain treatments (co-insurance is a fixed percentage of total cost (e.g.--20%) the patient must pay out-of-pocket or via their own private supplemental insurance) -- for treatments found less effective as determined for instance by the statistical life-extension results over time by conditions (e.g.--what percentage survivors at 2 years, 4 years, etc.) This would be done on an ongoing basis. The data and information delivery could be computerized, relying on data-entry of study results by a dedicated division of the public health care plan or national health care data center, to create independence from financial incentives or kickbacks in the private sector. New Treatments with little data would be given an initial success rate based on preliminary study data, or be listed as entirely experimental with a larger co-insurance requirement. This pricing would also have disclosure requirements -- real-time provision of price information to patients in doctors' offices or provider facilities, requiring signature before treatment. As with the previous information, this helps the patient weigh the choice of whether to pursue unreliable or experimental treatments. (Note that Pay-for-Outcome, below, is superior to this style of cost-sharing.)

  • Creating pay-for-outcome incentives for providers to switch from quantity-of-care in fee-for-service models to more effective quality-of-care-based systems, such as cooperative models like the Mayo Clinic or provider networks, by adjusting reimbursements from a public or private insurance plan to reward effectiveness instead of quantity. A provider that is more effective and succeeds with less tests and treatments for a specific, narrowly-defined condition should receive the same pay as a provider that does more to reach the same outcome. (A complete, dynamic, evolving structure for this with many provisions for difficult situations and complex outcomes, including diagnoses and drug costs, is here.)

  • Finally, since Reform is likely to combine guaranteed issue (private insurers must cover applicants who can pay) and prohibit exclusion of preexisting conditions and pricing discrimination, and since these would tend to increase overall premium costs, it is necessary to mandate everyone must buy health insurance so that those currently receiving free care through emergency rooms at the expense of everyone begin to help pay at least part of the costs of their own care. <> Because a mandate delivers everyone into the hands of private insurers, overall costs become crucial. Therefore, private insurers must be regulated to require they pay out a minimum of 88%-92% (I'd suggest 92%) of their incoming premiums for actual health care, but with smaller pay out levels allowed if insurers can innovate to lower costs. (But, if health insurance exchanges are set up then see further below.) Insurers would then rebate overcharges above this level with interest to policy holders annually. This balances the gift to private insurers of new captive customers who are required to buy insurance by capping insurers ability to exploit captive policy holders. Alternatively, a strong public plan would exert pricing competition. Finally, if broadly open (open to more than 1/2 the population) exchanges are set up with well-defined benefit plans, like "bronze," "silver," etc., then innovation and competition would lead to better results even without regulation of pay out ratios, as insurers and providers can compete to innovate to lower costs if they can take part of the resulting savings as a reward. Therefore, under the scenario of a Senator Wyden type of open exchanges (with broadly open exchanges), a regulation of payout ratios needs to allow for insurers to innovate to lower costs (via pay-for-outcome for instance) -- the payout requirement needs to allow for cost-lowering without temporarily penalizing insurers for such savings by allowing insurers to keep that extra profit for 2-3 years, if they manage to lower costs while maintaining outcome quality. Further, we need rules that force clear, simple disclosures to policy-holders of precisely what policies do not cover, along with Federal Standards of some very basic minimum coverage insurers are required to offer. (more detail in the 6th bullet in this post)

Recent good articles on Reform: (updated 10-3)

Mayo Clinic offers an Overview of Good Reform

Massachusetts to Replace Fee-For-Service (Global Payment example)

Health in All Policies (Op-Ed: theHealthCareBlog)

NYTimes Editorial: Curbing Runaway Health Inflation

Explaining Runaway Costs: The Lobster or the Salad?

Putting the Cost of the Democrats’ Plans for Reform in Context

NYTimes Editorial: Health Care and You

Hospital Savings: Salaries for Doctors, Not Fees (7-25)

David Leonhardt (NYTimes) on Health Care Reform (7-21)

Obama Today (7-17) on Reform (including long-term cost savings)

Mass. Panel Backs Radical Shift in Health Payment

Current bills (to 7-17) side by side comparison

Popular (and well-informed) public opinion

Medical Productivity via modern methods -- The Doctor is In, and Logged On


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