“Prius-Style” Health Care
National Health Policy Conference
February 12, 2007
Harold S. Luft, PhD
Institute for Health Policy Studies
University of California San Francisco
and
Center for Advanced Study in the Behavioral Sciences
Supported in part by a grant from the Robert Wood Johnson Foundation
Investigator Awards Program in Health Policy Research
(A work in progress—comments are most welcome: hal.luft@ucsf.edu)
Imagine…
• … “a fairy godmother”
(or “the Wicked Witch of the West”)
implements universal health insurance coverage,
financing everything with her magic.
• Would simply extending coverage to everyone create
a health care system working how it should?
Major Problems to be Addressed
Remedy Gaps in Coverage
Improve Quality of Care
Responsive to Patient Preferences
Slow the Rate of Growth in Costs
1
Fundamental Assumptions
• Incentives work—
if clear and actionable
• Information helps—
if desired and comprehensible
• Preferences vary—
across people and over time
• Regulations rigidify— often reflecting special interests
• Situations change—
so systems should be dynamic
Design Problems in the Current System
• Coverage is primarily through employer
sponsorship of specific plans
• Appropriate leverage and budget constraints
rarely occur in combination
• Fee-for-service is the principal basis of payment
• Incentives are focused on the patient using
deductibles and coinsurance
• Quality is hampered by poor information and
ineffective rewards
Making Lemonade Out of Lemons:
Old Features Worth Building Upon
• $209B in tax subsidies generates $589B in
employer and employee contributions1
• Most clinicians are used to being paid FFS
• Hospitals are used to being paid by the
episode—Medicare DRGs
• Carriers have the infrastructure for bill payment
—1 Selden and Grey, 2006
2
New Realities Open Up
New Possibilities
• Out-of-pocket costs have been increasing
• Costs decreasingly reflect physician time
• Hospitalists increasingly manage inpatient
care
• Data are increasingly easy to link and
reconfigure
• Web-based tools allow mass customization
Change How We Think About Problems
Conventional Way
Alternative Way
• Insure against financial losses
• Insure care for major events
• Losses accumulate over time
during a year
• Events can be acute or
chronic
• Incentives are targeted on
patients
• Incentives are targeted on
whoever makes the decisions
• Identify specific services to
cover or exclude
• Cover what is used by those
who achieve good outcomes
• Tightly designed research to
develop defensible guidelines
• Use natural variations in
practice to see ‘what works’
• Offer information to
clinicians
• Clinicians demand
information that is useful
Applying Hybrid Models
Automobiles
Health Systems
• Combine gas and electric • Combine public and private
• Use each fuel where
most appropriate
• Use FFS and case-rates
where most appropriate
• Convert energy wasted
during braking into
power
• Convert administrative data
and procedures into
information
• Use MPG feedback to
change driving behavior
• Use information feedback to
shape provider behavior
3
Why Isn’t Everyone Covered?
• Voluntary enrollment allows people who
think they are low risk to opt-out
• Premiums increase for those remaining
– the result is a ‘death spiral’
• Group coverage spreads risk
– but it dilutes incentives for efficiency;
– the result is that costs increase
• Some very low income people just can’t
afford coverage, even if fairly priced
Voluntary Coverage:
Not ‘Whether,’ but ‘For What’?
• Value conflicts over individual choice/responsibility
• Voluntary coverage is problematic:
– Major acute problems—we pay for a safety net
– Chronic problems—essential become uninsurable
• For other types of care, e.g., minor acute and preventive
– Cost may be a barrier for some—equity argues for subsidy
– Some preventive care may save the collectivity money
• Collective risk pool for major acute and chronic
• Individually-focused funding of other care, e.g., HSAs
Episodes and Dollars
Percent of Cost /
Episodes Episode
Percent
of Cost
Major (typically
hospital)
Chronic (except
exacerbations in major)
Minor
4%
$6,161
34%
21%
$862
28%
61%
$394
34%
Preventive
13%
$182
4%
Sample of ~800,000 commercially insured persons, 2003-04
4
Funding the Pool and HSAs-version 1
Federal
+ State Pgms
e.g.Medicaid
Employer
Contribution
Collective Risk Pool
Tax
Subsidies
‘HSA’
Harry
Dollars
Funding the Pool and HSAs-version 2
Federal Payroll Tax
Tax
Subsidies
Collective Risk Pool
‘HSA’
Harry
Dollars
Providers, Carriers, and Relationships
‘HSA’
Collective Risk Pool
Harry
PCP
Dollars
Hospital
A
CDT
Carrier
B
5
Providers, Carriers, and Relationships
• Clinicians & hospitals form Care Delivery Teams (CDTs)
– e.g., cardiovascular, orthopedic
• Other clinicians choose a carrier to handle billings
– Carrier knows the clinician’s ‘practice pattern’
– Carrier has broad and narrow networks of specialists
– Clinicians can choose to refer to anyone
– Carrier provides information on cost and quality
Major Acute/Inpatient Episode
‘HSA’
Collective Risk Pool
Expanded DRG
Harry
Supplemental
Payments
PCP
Dollars
Visits
Hospital
A
CDT
Carrier
B
Bundling Payment for Major
(Acute/Interventional) Episodes
•
•
•
•
•
Complex mix of providers and facility resources
Medicare already bundles payments for hospitals
Surgeons often charge “global fees”
Patients want input on treatment options and outcomes
Clinicians essentially make all the technical decisions
• Pay Care Delivery Teams (CDTs) an expanded DRG
• Monitor overuse with population-based rates
6
Determining Payment Levels for
Major Acute Episodes
• Payment should cover ‘better than average’ quality
• Rank CDTs on risk adjusted outcomes
• Payments from the pool reflect
– resources used by CDTs with above-average scores
– adjusted for local wage rates of each CDT
• CDTs may charge patients supplemental fees
• CDT quality scores are in the public domain
Quality Dynamics for Major Acute
• Outcome measures require adequate risk adjustment
• Pool pays average ‘cost’ of CDTs with better outcomes
• Fees above that implicitly meet a “market test’
• Some patients choose CDTs based on quality scores
• Dynamics create demand for better information
Chronic Care, In Network
‘HSA’
Collective Risk Pool
Monthly CIM
Payment
Co-pays
Premiums, reflecting
plan and practice style
Harry
PCP
Dollars
Hospital
Visits
A
CDT
Carrier
B
7
Chronic Care, Out-of-Network
Collective Risk Pool
‘HSA’
Monthly CIM
Payment
Premiums
Copays and out-ofnetwork differential
Harry
PCP
Dollars
Visits
Hospital
A
CDT
Carrier
B
Payment for Chronic Illness Management
(except for acute exacerbations)
•
•
•
•
•
Individuals may require a wide range of referrals
Care may be managed by a PCP or specialist
Practice styles may vary markedly
Patient access and involvement is necessary
Medications are often critical—and included
• Monthly payments from the pool cover most costs
• Payments to providers are FFS
Engaging the Patient in the Costs of
Chronic Illness Care
• No single approach best for all conditions and patients
• Carriers estimate net expenditure after CIM payments
from the pool reflecting costs of good outcome providers
• Carriers offer a menu of ‘plans’
– differing deductibles, copayments, and provider
networks
– utilization patterns and quality measures
– net premiums vs. expected out-of-pocket costs
• Transparency in pricing and quality information
8
Primary Care
(Minor Acute, Preventive, & ‘Medical Home’)
Collective Risk Pool
‘HSA’
Co-pays
Harry
Premiums, reflecting
plan and practice style
PCP
Dollars
Hospital
Visits
A
CDT
Carrier
B
Payment for Minor Acute Episodes,
Prevention and Medical Home
•
•
•
•
High frequency, low cost per episode
People may not need insurance, but desire a ‘plan’
Wide variability in practice
Many providers potentially involved
• Use FFS payments to providers
• Facilitate identification of practice styles
• Recognize roles for certain subsidies
‘Plans’ for Primary Care
• Not really ‘insurance,’ but a payment arrangement
• Costs reflect patient and clinician preferences for ‘styles’
– from ‘test and scan’ to ‘listen and observe’
• Information on the implications of various options
• May require coverage of cost-saving preventive measures
• May subsidize premiums and out-of-pocket costs
– Or, place money in HSAs, using something like the
Earned Income Tax Credit
9
‘Test Driving’ the Hybrid Model
•Middle aged man with cardiovascular problem
•Likes definitive answers through tests and evidence
•Doesn’t like to spend much time with doctors
•Willing to bear financial risk for reasonable expenses
Harry
•
•
•
•
Middle aged woman with diabetes
Trusts the judgment of her doctors
Values relationships with doctors
Doesn’t want costs influencing her decisions
Louise
H and L Begin to Negotiate the System
•Carriers are unconcerned about medical histories
•Pool guarantees monthly payments based on risk
•New major events covered by the pool
•Harry and Louise choose physicians and types of coverage
•Decide whether to primarily see PCPs or specialists
H and L Choose Primary Care Doctors
•Responses to clinical scenarios
•Practice patterns for common problems
•Measures of face time, phone/email, referrals
•PCP quality indicators
•Referrals to specialists and their quality
•Premiums and out-of-pocket costs for typical
patients
10
H and L Choose their Payment Plans
With the ‘pool’ covering the costs of
major events and chronic illness,
premiums reflect enrollee’s coverage
option and PCP’s practice style
Harry
Louise
Breadth of Network
Wide
$↑ Narrow
$↓
Deductible
High
$↓ Low
$↑
Coinsurance
High
$↓ Low
$↑
PCP referral and test use
High
$↑ Low
$↓
H and L Have Major Episodes
•Heart Attack  nearest hospital
•CDT paid by the pool
•Needing bypass surgery, Harry chooses to go
elsewhere
•That CDT demands supplements to the pool payment
•Harry’s plan covers part of this, but most is
out-of-network, and costs his HSA more
•Multiple Sclerosis—ongoing chronic care management
•Monthly CIM payments will reflect Louise’s condition
•Referred to a neurologist she likes, but out-of-network
•She switches to the neurologist’s carrier
•Continues to see her PCP through her new plan
Incentives for Quality
• Financial incentives reward efficient, high quality
• Not based on fixed, externally set standards
• Outcome focus builds the evidence base
• Designed to constantly raise the quality bar
• Sensitive to patient preferences for outcomes and
interpersonal and clinical ‘style’
11
Data and Quality:
Public, Semi-Public, Confidential
• Privacy of patient-identifiable data is essential
• Patient and provider linkable data for research
• Statistically reliable outcome measures are public
• Carrier-provider negotiated fees are confidential
Data and Information:
Public and Private
• Underlying data belongs to the public
• To avoid ‘black box’ problem, develop new analytic
techniques and measures with public support, licensing
• Production and ‘user-friendly’ dissemination of
ongoing reports may be private
• Interests favor public support for data preparation and
research on new methods and quality
Think of This As a ‘Concept Car’
• Goal: Not necessarily lower costs, but better value
• Risks and incentives placed where actionable
• Combine payment mechanisms—episodes, FFS, etc.
• Insurance spreads risk across people and providers
• Reduce the power of special interests
• Decision-makers demand and obtain better information
• Part of a much more comprehensive reform scheme
12
Imagine….
… a health care system in which
people do not have to worry about major costs,
clinicians can search out better practices,
improvements in quality are rewarded,
patients and providers choose their ‘style’ of care,
and technologies are adopted as they add value.
If you will it, it is no dream
—T. Herzl
13