There is an interesting discussion thread on Twitter about how the way Medicare for All saves money is by significantly reducing provider, device, and prescription payment rates.
@charles_gaba @mattyglesias @nicholas_bagley Also, how do you squeeze down large-employer ESI payment rates short of all-payer.
— xpostfactoid (@xpostfactoid1) January 15, 201
There was a related but unlinked discussion to how firms were responding to the probability of the Cadillac Tax applying to some if not all of their plans in 2018. The dominant response was to create plans with higher cost sharing to drive down utilization. Another response was to add wellness programs in an attempt to make the pool of covered lives healthier and thus cheaper to insure.
One of the few things that have not been mentioned in either context is network design in a fee for service environment.
Employee Sponsored Insurance (ESI) tends to pay roughly 150% of Medicare rates (this will vary by region, plan design, company etc, but as a rule of thumb 150% Medicare is close enough). That 150% of Medicare is not uniform. It varies by provider. One provider group might only sign a contract at 175% of Medicare while another provider in the same specialty will sign at 150% Medicare. Furthermore, two hospitals that are at the same Medicare multiplier will have different Medicare bases. A teaching hospital will have a higher base Medicare rate than a community hospital. A hospital in the boonies that is designated as a critical access hospital will have a higher Medicare base than a hospital with multiple near substitutes within a 15 minute drive.
Furthermore, two providers in the same specialty who are getting the same multiplier against the same base rate and are practicing in the same office building can have significantly different total claim payments even if they are treating statistically similar populations. One doctor may be inclined to wait and see while the other doctor will be sending the patient out for a lot of testing to rule things out at the first glance of trouble. The end results can be the same quality of care, but the care costs significantly more from one provider than the other.
Networks can be designed (as they are for some self-insured groups) to chop out the 5% to 10% most expensive providers. The most expensive list can be driven by either the multiplier or by risk adjusted and geography adjusted per member per month costs (PMPM). Carving out a very broad network that has 90% or 95% of the total contracted providers will save several percent through the combination of paying a slightly lower average rate per service and paying for fewer services.
If an insurer creates a medium network like this that is competitive and iterative so that the network is re-opened and rebuilt every year with a bidding process by providers to get into the network, it places pressure on providers to lower their contract pricing rates to either keep their place in the network (which should be driving a lot of patients to them as large groups will be very happy to save 3% or 5% without pissing many decision makers off) or to get into the network as the number of patients in the full price 100% participation network is dropping.
jl
Thanks for interesting post, but a lot packed into it. I am not sure what the bottom line is. Correct me if I have misunderstood, but my take away is that
Excessive practice variation has to be either justified on some rational grounds or eliminated,
The very old model of using price discrimination to cover high fixed cost operations has to go, therefore need to move towards average cost pricing.
Networks must die die die die DIE! DESTROY ALL NETWORKS!
Move to much simpler mandatory uniform policy with reasonable benefit design (Silver I think is RM’s preferred), and patients and providers who want more benefits or more money for doing obscure high priced stuff by policies on a separate less regulated supplemental insurance market.
RM and the dear commentariate will I am sure forgive me for repeating my slogan: Go Swiss.
Edit: which is not a judgment that Swiss is best, just that moving in their direction is the best next step, and most feasible politically and economically.
And note that stuff like single payer is just a financing mechanism, and problems similar to what we see in the US pop up in some countries that are moving helter skelter to some from of single payer finance when there is inadequate regulation of provider markets. Netherlands is an example. For more info, search for the WHO European Observatory on Health to read the country studies.
I guess after typing this, my bottom line is that we need a lot more attention to opaque markets, local monopolies and oligopolies in provider markets regardless of whether we want to just make incremental progress on PPACA, or prepare for a move to a good single payer finance system.
Mnemosyne
@jl:
A Swiss-like system is probably the next logical step — they have insurance companies, but they’re all nonprofits (for the basic policy, anyway) and the Swiss government regulates the shit out of them.
A single-payer system would be nice, but people don’t always seem to understand that a single-payer system would be organized by the states like the Medicaid system in. Even Britain’s system is technically 4 systems that work together: England, Wales, Scotland and Northern Ireland. Same in Canada — your health insurance comes from the province, and different provinces are better or worse at it.
Wag
An interesting post, as usual. As a physician leader in a teaching hospital we are working to decrease variability in care and trying to rein in excess testing It is a challenge, especially with our older physicians, but is less of an issue with those who are fresh out of training, as their education has emphasized issues of overuse from the beginning.
As far as the future is concerned, I think single payer makes the most sense long term, but it’ll be years before it’s a reality.
jl
@Mnemosyne: I agree, I think pretty much every single payer country and nationalized health care system has to devolve a lot responsibility to regions.
I’m glad HRC on Maddow was reasonable in clarifying her criticisms of Sanders’ plan (which we have to guess about since he mostly refers people to past bills he’s introduced) that her big problem was lack of detail about implementing adequate state financing of their share of the cost. (Looks like HRC so far is letting her campaign hacks be the bad cop, and then she comes in and is the good cop. I think Sanders does the same)
As for Swiss system, insurance companies can make a profit on the supplemental market. However, unlike other countries with uniform mandatory policy, demand for the supplemental market in Switzerland is disappearing, which I guess says good things about their mandatory policy.
I also agree that where Swiss have good ideas for next steps in PPACA is their provider market regulation. No networks, you can go pretty much anywhere. Price transparency partly through threat of federal govt audit if anybody wants to step out of recommended price bands, and partly through stakeholder negotiations to find consensus on fees. I don’t think the latter would be easy to implement here (social democratically controlled cartel economy has long been a Swiss thing and I think foreign to US, we go for unregulated ruthless cartels), so problem is to find a substitute for that.
I did forget to say that a form of networks are making an appearance in Swiss system through spread of managed care as form of expenditure control. So, maybe I got too enthusiastic in saying ‘networks must die’. Will be interesting to see how something equivalent to networks functions there, and whether their strong regulation will prevent complications discussed in the post.
FlipYrWhig
@Wag: What’s the best way to have single payer and also significant cost controls without making it possible for people to scream “rationing”? It just seems to me like if the government pays, you need a mechanism to stop the government from paying for every last thing. Or is waste and redundancy so rampant that all you really have to do is eliminate those and there will be plenty of money to go around to cover even the highest-end treatments?
Gibby
Over time, these posts have become increasingly opaque. I haven’t been able to follow one in months.
goblue72
@jl: Interesting comment. Mostly agree.
In terms of politics, I lean in favor of pushing for single payer – not because I think we can get there next year – but that it is important to keep moving the goalposts. Liberals like to complain ad infinitum that conservatives keep moving the goalposts -as if thats a bad thing. We need to do the same. Score a victory, celebrate, then quickly move on demanding the next thing. And then the next thing. Then the next thing.
Obamacare was signed into law in March 2010 – almost six years ago. It will be 7 years ago by the time we get our next President. Time to shift the Overton Window and work towards the next paradigm shift.
We successfully nationalized Romneycare. Now, I want to start normalizing talk about Medicare for All to create space in the public sphere about expanding the healthcare safety even further to true 100% coverage while driving down costs further.
FlipYrWhig
@goblue72: In the last thread on this general subject I was floating the idea of V.A. for all instead: a government-funded and government-employed corps of primary care providers and trauma/emergency specialists. That would make a big dent in access to basic medical care. Could be mobilized in the event of a disease outbreak or other public health emergency.
jl
@FlipYrWhig: Your question was not directed to me, but I can’t help throwin in my two cents.
As mentioned in my comments above, a very common approach in Europe is to have basic mandatory and universal coverage for a minimum benefit. This can either be a nationalized health service that provides a basic benefit, or a mandatory minimum benefit package sold on a highly regulated private insurance market, or publicly provided insurance policy.
Then, supplemental polices are offered on a less regulated market for those who want more amenities like a private room or services not covered with the mandatory minimum plan.
The main drawback to this approach is development of two-tiered system, as the private insurers and providers who focus on those with supplemental insurance will try to chip away and degrade the mandatory universal minimum policy and providers that deliver the real products and services. But, at least the issues and the struggle is out in the open.
But I think there is an advantage that is seldom discussed, and that is that you can observe what is going on in the supplemental market to observe the degree of satisfaction with the mandatory universal system. What are people buying the supplemental policies for amenities like private rooms, more services, or quicker service (ability to jump out of waiting list for some elective services).
For example, I’d like to look into differences between recent behavior on supplemental markets that are growin (I think France is an example) and where they are disappearing (as in Switzerland).
I think some comparative effectiveness test, and a limits on what universal care will pay for are necessary, and existence of supplemental market makes this constraint easier for population to accept.
And finally, some kind of discipline on prices. Economy-wide stakeholder negotiations between providers and payer groups seems to work well, but not sure it can happen in the US in a socially beneficial way. But it has its advantages.
jl
@jl: I think there are stakeholder negotiations of sort in the US now, but they take place in small and opaque regional and local markets. And some take place deep down in the guts of private and public bureaucracies. And example of the latter is the struggle between primary and specialist care. The AMA, some experts think, has been working at cross purposes with itself on that issue. I’m no expert on the issue at all, but I have read things that say the AMA has allowed specialists to capture the planning of the reimbursement mechanism that favors them, and draws most new doctors into specialty fields. At same time there have been AMA-gov efforts to increase primary care workforce, which I have read have failed miserably, since students have a hard time living a normal life with student debt and on primary care pay. If that is true, it would explain some things. US has higher than average proportion of doc workforce in specialties, and with Netherlands, by far, highest paid specialists in the world.
The ability to extend primary workforce through nurse practitioners and pharmacists is hampered by non-existent or fractured and squabbling professional groups to represent them. And ADA and AMA can’t seem to work together to get reimbursement for coordinated dental and medical care worked out, the importance of which is becoming ever clearer.
I’d like to say going Swiss there is a good idea too for next steps, but legal and political constraints in the US for ruthless and reckless cartels, rather than social democratically controlled cartel economies might just turn that into a big mess. I don’t have any good suggestions for what could replace organized stakeholder negotiations here.
FlipYrWhig
@jl: That’s why I feel like there needs to be a public sector for medicine — it’s not going to be lucrative compared to the private sector, but maybe it has other rewards: compare teaching or the Peace Corps. Or it’s how everyone has to start their medical career if they finance it with a government loan, or something.
Richard Mayhew
@jl: My TLDR point on this piece would be that network manipulations are a viable cost control measure that don’t need federal rules or laws and should be more aggressively pursued to restrain ESI costs.
Basically any not frighteningly incompetent insurance company will be able to very quickly generate a list of providers that are expensive and not that good and who are not needed to meet network adequacy requirements. Those providers, as long as they are not actively dangerous to patients or cooking meth on-site, tend not to be removed from the ESI network as someone, somewhere will scream that their doctor is now out of network because the Evil Insurance Company wants to hurt their care.
Crafting an intermediate size network that has the top 90% or 95% of the valuable providers with a competetive bidding process would immediately knock off a point or two of the cost of a premium without changing benefits towards more cost sharing. A portion of that premium reduction would be due to lower average reimbursement levels. A portion would be due to fewer services of low value being ordered and paid for.
Large self-insured companies do this to some extend. But as far as I know, there are very few 90% networks out there; instead there is a 100% network and then a big gap to a 70% narrow(er) network in ESI.
The savings would be less at a 90% or 95% network than a 30% or 70% network, but it would be a worthwhile whack at the cost problem. It won’t solve it, but it makes the problem slightly smaller without needing Congress to do anything.
Richard Mayhew
@Gibby: My apologies … I’ll keep that in mind when I write.
jl
@Richard Mayhew: Thanks.
I think the key here is that ESI systems work off of employment, so at least for large employers, this makes classifying the providers easier. There is enough exogeneity in the selection process to separate out provider cost and quality issues from special needs of self-selected populations. Do you think i am on right track?
Also, my apologies, since a lot of my comments apply more to non-ESI setting, so I was a bit unfair to your post.
But, I am still suspicious of networks. I think you mentioned that differences between networks and network games played by both insurers and providers cause excessive churn in enrollees, and I think that is bad for both costs and quality of care. You’ve mentioned all the problems unnecessary churn causes and I heartily agree.
jl
@Richard Mayhew: Also, I might not understand ”ESI’ correctly. Do you mean an employer who offers one plan, and just one.
I don’t see how your argument works with an employer that offers multiple plans with an annual open enrollment period.I remember when I talked with people running employer health benefits and insurance plans, that they were always nervous about problems arising from sudden big shifts in employee enrollment between plans a company offered. They felt that the employees were overly price sensitive and did not understand the changes in benefit designs well.
Brachiator
The more I read of Richard’s excellent posts, the more I realize that even supposedly simple policy proposals do not always lead to simple outcomes.
J R in WV
@Gibby:
Even if Richard’s original post is somewhat opaque, mostly because of the highly technical nature of his subject matter, if you read on down through the comments you will usually see less opaque information on the general subject of Richard’s topic of the day. Costs is what he is talking about today, and I have some remarks about my costs, today.
I got a renewed prescription at Krogers yesterday, for a tube of medical cream. The Pharmacy Tech lady asked if I had a new medical card for my prescription costs, and I said I did. Jan 1 I went on Medicare, not long after my eligibility for Medicare happened. She said “Oh, that’s good, this is expensive!” It is a 60 gram tube, 2 ounces of cream medication.
I asked “How much would it be without insurance?” and she told me it would be over $400 ~ !!!! Or $200 an ounce! My co-pay for this creamy gold was $60, which is not a small sum, either. I don’t know what this magic salve would cost over the counter in Spain or France, but I’m betting way less than my co-pay would cost.
I remember when my Dad, who died of side-effects of treatment for leukemia on Nov 2, 2004, would get a shot. They always sent him to the local hospital for the shot he got irregularly, because it was “free” in a hospital, but would cost $4,000 outside a hospital. He was almost always an outpatient for these medical events, and so was basically held and monitored for 6 or 8 hours, and then sent home, which I or my brother were there to drive him by that time.
One more interesting medication cost story. Being a non-health professional, all I have is anecdotal experience from individuals I either know well or am related to. I think everyone knows I live up a holler in West Virginia. Many of my best friends live past us, further up a holler. A couple summers ago two different friends, who garden intensively, were both bitten by a copperhead snake. One of them had a Medicaid health card, and the other had employer subsidized health insurance, as a physical therapy assistant. Both taken to the hospital immediately
The friend with Medicaid got antibiotics, in case of infection from the bite wound, and pain killers, the dreaded opioid pain relief you hear about in the news. He didn’t take them, as he doesn’t like the buzz you get from those meds. The friend with regular employee health insurance got an anti-venom injection, which cost the insurance policy $67,000. Plus antibiotics and pain killers.
So I’m thinking the drug manufacturers are out of control with greed, and need jerked up hard before they own everything in the world. This was shown pretty conclusively by the guy who bought production rights to an old and well known drug, with only a few thousand patients receiving it around the world. Then he raised the cost of treatment from $80 (or so, I don’t remember exactly and don’t care to spend my evening looking up horrible person stuff) to $12,000 or so. No greed there. He was arrested a few weeks later for securities fraud, which also speaks to his greed.
I see commercials on TV about “A chance for longer life!” from a newly approved lung cancer treatment. Who isn’t going to pay everything they have to live longer? Their slogan scrolls across skyscrapers and new office towers, while the potential customers look up at the news, and look at their child next to them, with a new optimism in their smile. Their kids will pay everything they have for Mom or Dad to live longer too!!
How is this ethical, or even legal? I hate what our society is becoming, money for life, if you have enough money, you can live longer. Or not. Just fall over and die if you aren’t rich, or well insured. How can Republicans or anyone believe this is right and the American way?
NobodySpecial
The BJ collective has decided that pushing for single-payer is stupid and unproductive, so why are we even still talking about it? Show me 60 votes before you talk about it.