Do we want hospitals and doctors to take on risk?

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Getting incentives right is always hard

Merrill Goozner, the former editor of Modern Healthcare, has posted a three-part series surveying twelve years of healthcare payment reform projects seeded by the Affordable Care Act and overseen by the federal Center for Medicare and Medicaid Innovation (CMMI). Part 2 focuses on the one notable success among those projects: The welding in 2014 of Maryland’s state-wide all-payer system to a global budget for each hospital that rises slightly below the inflation rate annually. In 2019 the state further expanded the global budget sphere with a Total Cost of Care Model, which sets a per capita limit on Medicare total cost of care in Maryland and provides incentives for hospitals and doctors to coordinate care, reduce hospitalization rates and meet other quality measures.

Goozner notes that according to CMS analysis, “In the eight years since Maryland began global budgeting, the program has saved the federal government well over $1 billion compared to Medicare spending in other states.”

In Part 3, Goozner leans into the premise that not only uniform payment rates and global budgets are essential to effective healthcare cost control, but also “convincing providers to take on risk is key.” That is, providers must be on the hook if per-patient costs exceed targets.

I have a question about that.

A country struggling to share too-high healthcare costs

Jonathan Cohn today posted a roundup of eight health care experts' prognoses for the Affordable Care Act. Among them is Sean Parnell, author of the book and blog The Self-Pay Patient, information sources for those forced to pay all or most or a good portion of their medical expenses out of pocket. Regardless of whether the ACA "succeeds" or "fails," this part of Parnell's forecast is a near-certainty and worth noting:

There will be more Americans who pay directly for more of their health care. The ACA is projected by the Congressional Budget Office to leave 30 million people uninsured, and tens of millions more will get high-deductible plans through exchanges or their employers. These self-pay patients will demand price transparency and discounts for paying in full at the time of treatment, and innovative entrepreneurs will step up to cater to them while ignoring the traditional third-party payment system.

Many have pointed out the irony of Republicans excoriating the ACA for offering high-deductible plans, which conservatives have long touted as a means to promote patient responsibility and cost control. Some reforms intended to make patients weigh costs could be effective if they include the information required to make an informed choice -- e.g., incentives to choose providers with high performance ratings and transparent pricing -- or reference pricing, where the use of a plan-preferred specialist is fully covered, while patients pay the difference if they want a more expensive provider. 

Fallows & co. on offloading medical risk on seniors

James Fallows, trying to put his finger quickly on what is off-whack about Ryan's voucher replacement for Medicare, has recourse to Fiscal Times correspondent Merrill Goozner (Fallows' emphasis and comment following):

Here's the real argument young and middle-aged people need to hear, and the real reason why the "more skin in the game" argument can never work for seniors or other vulnerable populations, including them when they reach that age. Seniors and the poor account for over half of health care spending. Within those groups, 5 percent of the population accounts for 50 percent of health care costs; and 20 percent of the population accounts for about 80 percent. These costs come for the most part at times when economic incentives have no influence at all on medical decision-making: in medical crises; in treating chronic conditions; and, for most Medicare patients, in the last six months of life.

That's why a voucher program for Medicare, which will shift an increasing share of those inevitable costs onto the elderly themselves, can fairly be categorized as a 100 percent estate tax or death tax. People under 55 need to know that if the plan crafted by Rep. Paul Ryan were passed, most of them will never have a cent to leave to their children. It will all go to the health care industry to support the American way of dying.

Here's a bit of real world evidence supporting that view: Why is the savings rate so unbelievably high in China -- as much as 50 percent of the GDP? There are many reasons, crucially including exchange-rate policy. But a very powerful individual motivator is each family's knowledge that there is no Medicare-like system for their older members. Health care is on cash-payment basis there, and so every family must save like crazy against the risk that the parents or grandparents will require very expensive late-in-life care. More savings would be good for America, but that's not the right way to induce them. It's hard to believe that the Republicans will seriously embrace a plan to undo Medicare.

That evoked a lot of reader response, including from yours truly:

We [already] have that de facto "death tax" in connection with nursing care.

Every family that doesn't have a spare 100k/year effectively rolls the dice regarding how much of an estate may be eaten up by nursing care at the end of life. The only private remedies are 1) LTC [long-term care] insurance, a highly uncertain and problematic product, and 2) strategies to offload assets to children while there's still time.

Perhaps this system is the best we can do right now. There's certainly no will in the U.S. to tax ourselves to the extent that would be needed to provide something like universal LTC coverage. (In an ideal world, how about this bargain: a massive [by US standards] estate tax earmarked for LTC coverage.) But as you suggest, adding near-complete exposure to medical expenses for the elderly would make this risk burden intolerable. I can't believe we're seriously considering it. And in fact, we're not (unless we get a GOP president and Congress before the party changes course...