Wednesday, April 29, 2009


I’ve been reading some of the testimony on delivery system reforms from the House Ways and Means Committee meeting earlier this month, in particular the lengthy statements from MedPAC Chairman Glenn Hackbarth and Urban Institute Senior Fellow Dr Robert Berenson.

Hackbarth and Berenson are each distinguished health care figures, and their remarks are worth careful study. Together, they paint an all too familiar gloomy picture of a system whose costs are out of control, in which quality is often poor, and where there is little correlation between expenditures and outcomes. Few would disagree with the causes that they identify: payment structures that reward volume, lack of coordination among providers, an overemphasis on specialty care, and a system that seems more often driven by supply than demand.

The two sets of testimony include several very important recommendations, like more emphasis on public health, dissemination of comparative effectiveness information, and higher payments for primary care (although several years will elapse before this makes a real impact on physician career choices).

Other testimony proposals, however, especially those focused on Medicare, carry the risk of distracting us from more important changes. Chronic care coordination (including the medical home model) has not yet convincingly been demonstrated to cut costs. Accountable care organizations (this year’s buzz-phrase) require more willingness to cooperate than many providers have so far shown. Bundled hospitalization payments make good sense but require the same kind of willingness to cooperate. Tying payments to quality introduces questions of data interpretation and validity of guidelines.

Aside from their uncertainty of success, these proposals share two problems. Each offers potentially inadequate incentives for changing entrenched provider behavior, and each represents yet another government attempt to make an inherently inefficient and ineffective system work just a little better.

Rather than trying to breathe life into a system that might be better left to wither and die, perhaps we should focus on the potential of market Darwinism—in which the most cost-effective survive, and the less fit fall.

In the context of Medicare, Darwinism means redesigning Medicare Advantage so that private plans compete with the FFS program on the basis of price alone—without subsidies. While Hackbarth’s testimony noted the need for financial neutrality between MA and FFS, he stopped short of the recommendation that would make survival of the fittest a reality: allowing beneficiaries to offset any MA savings against their Part B premiums, and requiring that they assume the full additional burden when MA premiums exceed FFS costs.

In the context of national health care reform, Darwinism means setting a standard benefit package that insurers must offer through an insurance exchange. Insurers should be allowed to offer separately priced supplemental coverage, but again—except for low-income individuals—there should be no counter-productive government subsidies that disguise differences in premium cost for the basic benefit.

What might be the results? Assuming a functioning risk adjustment mechanism to discourage “cherry picking,” the least cost-effective insurers should rapidly disappear, the better HMOs should thrive, while the best managed other insurers should apply the kind of cost pressures and pricing innovations that Hackbarth and Berenson have presented (and should rapidly abandon them if they are ineffective).

This doesn’t mean that Medicare FFS demonstration projects aren’t worthwhile. It would be wonderful if the costs of traditional Medicare could be controlled. However, we should be focusing more on the kind of health care system that will work long-term, rather than expending too much of our energies on the application of band-aids and baling wire to something that is inherently faulty.

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