There is a general consensus that health care needs to be accessible, high quality and less costly. Improving the general health of all Delawareans is also an important goal.
The way to reduce costs while maintaining or improving quality is to raise productivity. Economic theory shows that the best way to do that is to incentivize problem-solving, cost-cutting, innovative behavior by those closest to the problem: the patients and their doctors. Yet the plan outlined in Choose Health Delaware seeks to achieve these goals with a top-down, heavy-handed bureaucratic approach which tends to reduce incentives to increase productivity. Giving individuals who have the most at stake the freedom to find solutions is a better strategy. Here are suggestions that go to the heart of the problem and align the incentives of both doctors and patients.
Share cost-savings with patients, not just providers and payors
1. Build on the concept behind Medicaid’s Cash and Counseling program to manage patients with chronic conditions, such as diabetes. Participants receive a fixed budget that they can allocate to qualified expenses. Funds left over at the end of the year can be split (exact figure to be determined) between the payor (government or insurer) and patient. Participation in the program should be voluntary for both patients and doctors and continued eligibility of patient should depend on outcome measures (e.g. blood test results).
Why this will work: Patients will have the incentive to seek out the lowest cost physician practices that still meets the outcome targets. They will have an incentive to adhere to treatment protocols. Physicians will have incentives to offer low-cost case management services to attract patients while encouraging adherence to retain patient eligibility.
Potential drawbacks: There will be patients who are not capable of managing a budget. However, there is likely to be a learning curve as patients learn from those with experience with the program. Physician practices with a comparative advantage in case management will also have an incentive to educate patients who could benefit from the program.
Why this is better: The current plan is to encourage ‘accountable care organizations’ to manage patients with chronic conditions to reduce cost and improve quality. The incentives are similar to that of Health Maintenance Organizations (Mark Pauly, LDI Issue Brief, 2012) and are likely to fail for the same reasons: patient dissatisfaction/failure to adhere and the few if any benefits received by physicians relative to significant downside risks (e.g. litigation) of limiting care.
2. Promote price transparency by requiring providers, including hospitals, to post prices for standard procedures on the Internet and as a handout to patients. Require providers to give cost estimates when requested. Require providers to make Medicare and insurer negotiated price information available.
Why this works: Patients can assess whether Health Savings Accounts might better meet their needs for minor health care needs than a more expensive insurance policy and where to get efficiently priced care. Quoted prices reduce the risk that patients will be charged amounts significantly higher than what they expect. Physicians have incentives to keep costs low to attract patients who can now comparison shop.
Potential drawbacks: Physicians may not know in advance what services an office visit may entail. Nevertheless, this problem is little different than that faced by home and car repair services, who charge to make an initial assessment and then make estimates. Other branches of medical care, e.g. plastic surgery, advertise prices for routine procedures.
Why this is better: The current plan is to collect all sorts of cost and quality information from accountable care organizations and the like for the benefit of payors and practice/hospital administrators. Very little is available to the consumers themselves who are in the best position to shop for quality versus value. Other states, NH, MA, OR and ME, provide price information based in insurance claims. There are Internet tools. HealthcareBlueBook.com offers a suggested “fair price” for a service, based on a database of rates paid by private insurers, according to parent company CareOperative LLC. NewChoiceHealth.com gives providers’ list prices, which are derived from Medicare data, according to New Choice Health Inc. However, information on the Internet is not accessible to a significant number of (older or low-income) patients who may be unfamiliar with it and unaccustomed to looking for health care price information.
Maintain a competitive market in primary care providers
1. Reduce barriers to entry in the health care market particularly in primary and routine care. Streamline the regulatory process for retail clinics, eliminate the certificate of need rules and recognize the licenses of physicians in good standing from other states without the need to get a separate DE license.
Why this works: Markets dominated by one or few suppliers are characterized by high prices, low quality, and little innovation. The primary care market in a small state like Delaware could be easily dominated by one or very few primary care providers. McKinsey’s study of healthcare systems in developed countries concluded that competition in primary and routine care was more efficient and produced more patient satisfaction than a market dominated by one or very few suppliers. Patients have more opportunities to seek out high quality, cost-efficient care. Elimination of barriers such as the certificate-of-need reduces the ability of existing providers to threaten to block entry, and thus encourages entry by new providers.
Potential drawbacks: In Choose Health Delaware, there was much concern expressed about fragmented care. The specific problem of fragmented care was not always clearly identified. Duplicative tests or un-coordinated prescriptions are communication problems whereas variation in the quality of diagnosis and treatment is provider education problem. These problems are addressed below.
Why this is better: The current plan consolidates primary care physicians into larger accountable care organizations. However, economists recognize that this runs the risk of creating market dominance that will discourage innovation, raise costs, and lower physician productivity and morale because they are now employees of a large cartel. Moreover, primary care practices that merge with hospitals create an incentive-incompatibility problem for the system. Hospitals are in the health-crisis-management business, whereas primary care doctors are (or should be) in the health-crisis-prevention business. This incompatibility may end up increasing cost and utilization unnecessarily.
2. Allow patients to easily transfer records between providers. Require providers to record lab results, prescriptions, diagnoses, etc. in a common electronic format (flash drive) that patients can take to other providers. Require that physicians provide hardcopy printouts if patients request them.
Why this works: Patients can more easily search for quality care among primary care providers without the upfront costs of new assessments. Physicians no longer need to rely on the memories of patients for their medical diagnoses and prescription history. Duplicative tests are avoided because physicians can see the dates and results of tests reported on the flash drive.
Potential drawbacks: Providers would have to agree on common format(s) and might need to invest in new equipment or software. Patients may forget their flash drives. However, since patients are accustomed to demands for photo ID and health insurance cards, a flash drive will not be much of an addition.
Why this is better: The current plan envisions coordinating care through accountable care organizations that serve as a patient’s ‘medical home’. The existence of a small number of large organizations runs the risk of market dominance and associated problems of quality control, high prices and slow innovation as noted above. Alternatively, patients may get care from providers not in their ‘medical home’.
3. Make physicians provide and make widely available quality measures.
Why this works: To address variation in care that may be harmful to outcomes, patients need to be informed. Board certification is one such measure and other quality measures that are appropriate should be required.
Potential drawbacks: Physicians may object but these measures are being collected anyway by Medicare and insurers so there is no reason not to make these publically available.
Why it is better: The current plan is to collect this data for practice and hospital administrators. Since patients are those who have most at stake in the quality of care and are need this information to assess cost and quality tradeoffs it should be made available.
Make health insurance more accessible and portable
1. Enter into agreements with other states to allow insurance companies in other states to sell insurance in Delaware.
Why this works: Opening the market to other insurers may provide innovations in payment schemes and plans that will increase customer satisfaction and reduce incentives for providers to raise prices.
Potential drawbacks: New insurers may not enter the Delaware market.
Why this is better: Right now the health insurance market is dominated by two insurers: Aetna and Highmark/Blue Cross Blue Shield. If Delaware enters into agreements to let other insurers enter the market, even if there is little actual entry, the potential for entry is likely to encourage these existing insurers to set competitive rates and policies.
2. Allow individual policy premiums to be deducted against state taxes regardless of whether the policyholder is employed, self-employed or unemployed.
Why this works: Individuals are required to purchase insurance and not all qualify for subsidies or for enough subsidies to cover their costs. Unlike employer provided policies, individuals cannot always use pre-tax dollars to buy these policies (depending on situation). These policies should be deductible against federal taxes as well but that is not in the power of Delaware’s state government.
Potential drawbacks: costly to state government. However, if these individuals remain uninsured, then need care, the state may end up covering these costs, or providers may, who then raise prices.
Why this is better: Individuals are allowed to deduct premiums under certain circumstances (self- employment) but the current system is unjust to workers who do not qualify and makes life difficult for those who change employment status.
3. Provide a resource to help small businesses who wish to contribute to employees’ individual insurance premiums.
Why this works: Enabling small businesses to do this easily will encourage them to insure more employees and make it easier to start and grow a small business in Delaware.
Potential Drawbacks: May cost state government to set up and staff this resource. However, this would be a marginal increase to other help provided by the state of Delaware to the small business community.
Why it is better: It is possible but not easy for small businesses to navigate the legal labyrinth to make tax-deductible contributions to employees via a Health Reimbursement Arrangement/Account. Providing this information to them without need to hire costly lawyers or accountants will do that.
The goal is to incentivize both health care providers and patients/potential patients to improve health outcomes in Delaware. The Choose Health Delaware plan identifies many strengths and weaknesses of the current situation. Changes to the health care system should be those that develop its strengths while correcting weaknesses. However, the top-down, bureaucratic model laid out in this plan discourages the type of innovative thinking and behavior modification that is so badly needed for productivity improvements in this industry.
Patients care about quality but need better information to assess quality of health care. They would also care about cost, if they share even partially in cost savings and had adequate information. In other venues, many Americans are astute shoppers of value. The information generated by these shoppers benefits other consumers as well as suppliers. Any plan to generate health care cost savings should deploy this valuable resource in the health care market as well. On the supply side, rewards need to be closely tied to individuals’ efforts to increase quality while lowering costs. In a free market, this is achieved by increasing the profits of the innovating supplier. The Choose Health Delaware plan, by encouraging consolidation on the supply side, and reducing individual physicians’ power to make decisions and to reap the benefits, is likely to reduce the incentives to innovate.
Another part of the problem of improving health outcomes in Delaware is improving the adherence of patients to treatment. The Healthy Neighborhoods program (in Choose Health Delaware plan) appears to establish a new bureaucracy to set goals and hold accountable various organizations that serve low-income, chronically ill populations. This ignores the motivations of the people themselves. Without patient engagement, these strategies are likely to fail. We proposed an alternative above. Experience with this alternative is more likely to generate successful behavior modification strategies than the wishful thinking of the Choose Health Delaware plan.
The Choose Health Delaware document is useful in identifying areas for improvement, however, it pays little attention to creating proper incentives. We believe these strategies, and the freedom of patients and providers to act in their own best interest, will yield better health outcomes.