Health Care Payment Reform

RAND researchers writing in the New England Journal of Medicine give a big thumbs-up for bundled payments to replace fee-for-service medicine.

In an article titled “Controlling U.S. Health Care Spending — Separating Promising from Unpromising Approaches,” the researchers estimated the likely impact of 12 policy options:

Bundled payment provides a mechanism for reducing both the volume of services and the prices charged for them. We estimate that under optimistic scenarios and with broad use of the Prometheus model³ of bundled payment for six chronic conditions and four acute conditions or procedures requiring hospitalization, national health care spending could be reduced by 5.4% between 2010 and 2019.

Price transparency alone does not lead to lower prices for health care services, according to an analysis of the New Hampshire HealthCost transparency program by the New Hampshire Insurance Department and the Center for Studying Health System Change.

..the study found public price reporting had no impact on price variation across providers, a result attributed in part to the lack of competition among providers and few incentives for consumers to compare providers based on price.

This isn’t surprising, but it does underscore just how many things have to work together to create a health care market in which patients shop for value, defined by the combination of efficiency and quality. The study’s authors wrote:

Whatever the extent of provider competition in a particular community, price transparency efforts are unlikely to spur significant price shopping by consumers as long as insurance benefit designs continue to contain little incentive for consumers to choose low-cost providers. In New Hampshire, as well as nationally, financial pressures on both public and private employers may result in more widespread adoption of high-deductible plans, tiered-provider networks and other benefit designs aimed at making consumers more cost-conscious when choosing providers. As more employers aggressively pursue such strategies, more consumers will find incentive to use price transparency tools like HealthCost.

However, there are limits to the extent to which increased patient cost sharing can be expected to lead to more active shopping by consumers. Some New Hampshire stakeholders suggested making HealthCost a more useful shopping tool by adding information about more “big-ticket items” such as heart bypass surgery and hip replacements. However, prices for expensive services often exceed a patient’s deductible even under a high-deductible plan, which would reduce that patient’s incentive to shop for price; in some cases, prices may exceed a patient’s annual out-of-pocket maximum as well, which would eliminate the price-shopping incentive altogether.

A new payment system that would reward hospitals based on the quality of care they deliver would apparently shock hospital board leaders. According to a report on the Wall Street Journal’s Health Blog, a new Health Affairs survey finds virtually all board chairmen believe their hospital is at least average:

Ninety-nine percent of hospital board chairmen think their hospital fares at least as well as a typical hospital on standard quality measures. Among the chairmen of hospitals that perform worst, 100% say their hospital performs at least as well as a typical hospital.

With this kind of leadership, it’s no wonder the quality of hospital care in America is so unreliable.

Writing in today’s Wall Street Journal, Dr. Herbert Pardes, president and CEO of New York-Presbyterian Hospital, brings up a topic that has not received enough attention in the health care reform debate: the shortage of physicians.

Of course, an overhaul of the health care delivery system could decrease the demand for physician services as a team-based approach to care supplants the current physician-centric model. But the legislation currently being considered will not transform the industry in that way, so the greater number of insured patients is likely to increase demand for physician services.

The law of supply and demand suggests that physician pay will have to increase to assure an adequate supply of  physicians. On its face, an overall increase in physician pay would appear to be in conflict with the goal of decreasing health care costs.Do you think Dr. Pardes is right with this comment?

To address the shortage of doctors and the incentives that compel young doctors to eschew primary care, Congress needs to think about how to increase doctor pay, institute malpractice reform, and provide subsidies to reduce the amount of debt doctors have to take on. Residency caps should also be raised so teaching hospitals can train more doctors. Without these actions new doctors would be foolish to enter primary care, and thankfully our medical schools do not recruit foolish people.