November 9, 2009

(Update 11-16) Bend the Cost Curve with Easy, Incremental Changes

There is a way to get politically-favorable reform that will have profound effects in just a few short years.

I say "favorable" since currently a significant part of Congress and America is quite concerned about reform that does not bend the cost curve (reduce health care inflation). Right now, health care reform is a challenging situation only because this group concerned with health care inflation is not confident in the proposed reforms.

It would help greatly if the proposed pilot programs in Medicare were aimed in the legislation to arrive at real outcomes in specified time periods, such as moving Medicare 100% to "paying for quality" within 8 years.

Below is a specific way a pilot program could proceed to accomplish exactly that.

Reforms to reduce health care cost inflation in Medicare have often been shot down by providers and medical suppliers over the years, since the reforms are seen as significant change and seem threatening to easy profits.

Medicare sets the practices for health insurance, as private insurers follow its lead in implementing changes in payment.

So it's a good time to highlight the last new idea I added to the bottom of How to Pay for Outcomes Over Time.

Instead of comprehensive payment reform all at once, which is politically impossible.... Why not just make a few small but effective changes in how Medicare pays for certain treatments each year.

Incremental change would provoke little or none of the type of opposition that has shot down reforms in the past.

In fact, Medicare could make quite small changes that the great majority of doctors would consider reasonable and support.

And these little changes would slow health care inflation within 1-3 years.

You can find out how to implement paying for outcomes over time incrementally in the 9-22 update at the end of this post.

Here's the section in brief:

Reading this brief Peter Orszag interview it occurs to me to point out an easy, low-stakes way to gradually move from pure fee-for-service towards more pay-for-outcome-over-time.

The objective is to transition with small changes anyone could like and which doctors universally (or near universally) could support.

Reform without big, sudden change would be much easier to implement politically.

Start with a very short list of narrowly defined conditions (such as a severely arthritic knee which needs replacement, or certain heart conditions) and implement small success payments, such as 5%-15% of the normal full cost of complete treatment. The success payment would be made after the treatment is shown successful as indicated by no need for extra treatment(s) beyond the normal follow ups needed for that specific condition within a certain specified time period for each specific condition in the list.

The initial payment, made when the main treatment is complete, would be the remainder of the full cost of complete treatment. For example, if the success payment is 10% (before we also add a bonus percentage for outcome quality), then the initial payment would be 90%. Thus the complete payment for a successful treatment in this example would be the total of 90% + 10% + the bonus percentage.

Another example, for clarity: for a certain condition, upon treatment an 88% initial payment (88% of the full fee) could be made, and if the patient does not need further treatment (other than normal follow up and normal therapy) for that condition during the specified success time period, a 12% success-over-time fee payment would be made after that time period. The outcome quality would then be used to also generate an additional bonus percentage payment. --- For instance, in our example of an 88% initial fee, the success payments might total 14%, for a grand total of a 102% successful treatment payment. For this condition, some patients might not be treated successfully and would thus result in a payment of only 88% of the full fee, while most patients on the other hand would be treated successfully and would result in a payment of 102%.

This outcome-incentive system could be implemented initially for a short list of 5-20 specific, moderately-expensive narrow conditions which have clear enough typical outcomes such that it is easy to specify what is a good outcome-over-time in terms of a no-relapse, or success, time period. Any success bonus percentage (above the normal full fee) can vary according to what is shown to work well over time by experience.

Gradually, several new conditions/success-criteria could be added each year to the list, perhaps by vote of panels of doctors.

This is a simple, limited version of pay-for-outcome-over-time which would have low stakes, and allow a gradual implementation.

Slowly, over time, a pay-for-outcome system could come into being, improving quality and value.

Note: Several ideas from comments have been incorporated into the Pay-For-Outcome-Over-Time system, which was developed over several months. Note also that comments are forwarded to me, and I respond usually. Also, anyone can contact me via email at:

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