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Health Care We Want to Pay For

2009/10/01

This post responds to a question posed by Adam Hartung of the Lake Forest Graduate School of Management (LinkedIn).  Earlier post versions replying to him are in Forbes (forbes.com/health-care-reform) and his blog (tinyurl.com).  He asked, “Shouldn’t we involve marketplace input to health care reform?”  My reply— “We want health care we want to pay for.”

[Edit note: I made a change to this post.  Here’s why—I left out the word “training” in the paragraph starting “The key is knowing…”]

Today, the healthcare-banking industry operates as an arbitraged cross-subsidy and service denial model across demographic groups.  This minimizes net cash outflow to subscribers in order to maximize the flow of funds to major bankers for overnight lending. The related business metrics aim at current retained cash flow, not at health outcomes, which operate as a cost-of-business constraint on retained cash flow.

Net payout ratios by HMOs to their subscribers were some 95% in the early 1990s, and now are in the 76-79% range. When an HMO’s payout ratio rises much above 76-79%, that firm’s stock is hammered (Moyers/journal). When HMO’s cull subscribers by less than 0.5% annually (see testimony to Congress by HMO chiefs at testimonyHamm and LAtimes/insurance), it’s because that 0.5% group represents some 20% of their payout (MassMed.org), so it’s not personal, it’s just business. That’s one impetus for a change in the overall healthcare framework.

As a policy matter, the other impetus for change is that a proven prevention and wellness program can provide sustainable economic advantage to a region and the country.  This drives substantial economic benefits to firms and employees, families, underinsureds, and uninsureds.  Healthier people simply do not need to demand as much high-cost care—it’s the opposite of the current MCO-based service denial and rationing approach*.

The key is knowing how to shift significantly more individual incentives (and thus health spending) to accountable, lower cost, front-end prevention, wellness, and protocol tracking, away from higher-cost, back-end sick bills.  Beyond net direct dollar savings, a significant firm-level result is increased labor productivity due to less absenteeism and presenteeism, further boosted by a positive side effect from more work team cohesion, reliability, and training effectiveness (HealthProductivityStrategy, DiseaseMgmt/resources).  The total regional effect is a relationship—lower labor and social costs, plus higher workforce productivity, equals global comparative advantage.

That bears repeating… building on data from the AshevilleProject, we can integrate additional best practices to cut some 35-40%+ from the net health spend while:

  • Reducing labor’s health costs,
  • Increasing wages,
  • Reducing our social overhead burden,
  • Improving our health and productivity, and
  • Growing US global economic competitiveness.

The work is in the details.  The good news is that better models are emerging, especially among larger self-insured employers. These models usually involve private and public employers, multi-stage providers, and state agencies and policymakers. Without adding fresh money to the system, the core tactic is to use back-end budgets for actuarially anticipated acute care to pay for stable front-end care aimed at prevention and wellness.  Care across the board comes from patient-centric, team-based supply chains, and includes paying for prevention to get the health care we want to pay for.

The front-end prevention and wellness strategy is reinforced by designing annual risk assessments and accountable employee incentives (Hannaford, NBCH), connected with coaching support and network medication controls set up by pharmacy activators (PPCN).  The strategy and incentive design can extend to transfer payment populations.

The integrated patient supply networks include doctors, dentists, pharmacists, specialists, RNs, assistants, physical therapists, nutritionists, naturopaths, psychiatrists, hospitals, community and on-site clinics, etc, as modeled by Keene2020 Medical Village participants and Federally Qualified Health Centers (FQHC recap, hrsa.gov details).  Networks, incentives, and public transparency of prices and outcomes combine to support the personal behavior needed to reduce the demand for acute care.  When integrated networks, tracked incentives, and front-end prevention-wellness care are scaled across firms and agencies in whole regions, the result is improved regional population health outcomes, a decline in a region’s net year-over-year health spend, and increased regional competitiveness.

As a specific market opportunity, the integrated health network across multiple doctors, dentists, pharmacists, and specialists for any given patient increasingly will be needing interoperable patient-“owned” medical records, telemedicine, and action alert technology (SemantxLS) as wide-spread “cloud” resources.

The more complete models also are beginning to balance the cost of care, and some include tort reform.  In these models, providers accept course-of-care progress payments that track data-driven, network-wide, patient-centered results (note: this includes coaching and consults, and is not equivalent to capitation or “global payments”). For all but intakes and the most standard care, this payment approach replaces fee-for-service and unit-level service billing.  Universal unit-level fee-for-service billing is ruinously expensive to run, it fractures care by separating care from health, and, as often occurs with cost-plus contracts, it contributes seriously to specialist-driven service overutilization (Gawande).

So yes, there’s room for a marketplace response to the current healthcare scenario. But it requires more nuanced, learning-based framing than simply saying, “OK, have at it.”

______________________________________

*/ Note: MCOs are managed care organizations, of which HMOs and PPOs (Health Maintenance Orgs and Preferred Provider Orgs) are examples, created by the HMO Act of 1973 (recap at HealthMaintOrgAct1973 – for US Code, see HMOA1973.htm).

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4 Comments leave one →
  1. 2009/10/01 6:00 pm

    I just stopped by your blog and thought I would say hello. I like your site design. Looking forward to reading more down the road.

  2. 2009/10/02 4:41 pm

    Pretty thoughtful stuff!!! Excellent data, and excellent discussion. Thanks!

  3. 2009/10/28 11:54 pm

    Adam, your kind words are much appreciated. Regrets for this very slow comment handling and reply, but I was out of touch for a while. Here’s looking forward to continued dialogue and a systemic, effective US healthcare system.

  4. 2009/10/29 12:01 am

    Susan, I’m glad you dropped by. I hope you find the eclectic mix of macro and micro economics, and institutional change, to be of value as you help your clients and associates in financial circles think through the possibility that healthcare may be the immediate next major US bubble continuing to emerge at 6+ percent annually.

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