Annals of unpublished letters: NYT flags global payment proposal in Massachusetts

Today the Times editorial board, lauding the "Massachusetts experiment in near universal care," flags the recent proposal to move the state to a "global payment system":

Now the state seems poised to tackle costs — with an approach that is far more ambitious than anything currently being contemplated on Capitol Hill.

A special commission has just recommended that the state try, within five years, to move its entire health care system away from reliance on fee-for-service medicine, in which doctors are paid more for each additional test or procedure they provide.

In its place, the commission wants a system in which groups of doctors and hospitals would receive fixed sums to deliver whatever care a patient needed over the course of a year. The hope is that doctors would be motivated to deliver only the most appropriate care, not needless and excessively costly care, with safeguards to ensure that they do not skimp on quality.

On July 20, a certain frustrated letter writer sent this to the editorial board as well as to the letters editor:

While exhorting Congress to do more in pending healthcare reform legislation to control costs, the Times editorial board might have noted the truly radical core proposal of Massachusetts' Special Commission on the Healthcare Payment System: abandoning fee-for-service in favor a "global payment" system that pays by the patient, rather than by the treatment, and rewards good performance. At the core of this system would be development of Accountable Care Organizations that accept responsibility for the full spectrum of each patient's care.

This proposal goes to the heart of what the editorial board itself has identified as the central driver of healthcare inflation: providers' incentives to prescribe expensive -- and often unnecessary or unproven -- treatments. The reform, if adopted, will not be easy. The Commission envisions a five-year phase in period to develop a global payment system that "will include adjustments for clinical risk, socio-economic status, geography (if appropriate), core access and quality incentive measures, and other factors." But such reform, if adopted, would be truly fundamental.

Footnote: on a quick read, it appears that Medicare Advantage providers are paid by the patient rather than by the procedure -- and have not reduced healthcare costs. Why not? More on this later....

MedPAC: Obama's rudder for the healthcare battleship

In an interview focused on healthcare, Washington Post editorial page editor Fred Hiatt asked Obama why he's set against capping businesses' tax exemption for money spent on health benefits.

It's widely assumed that this would be an effective tool for reducing healthcare inflation, since businesses would have an incentive to keep their healthcare spending per employee below the cap. It's also generally assumed that Obama is resisting this measure because it was a central plank in McCain's healthcare "plan" (such as it was), which Obama campaigned against.

But Obama's answer to Hiatt's question is interesting, and compelling:

Now, this is something that I think economists find appealing partly because it's -- although it's a blunter instrument, it's more measurable than some of the delivery system changes -- although I actually think the delivery system changes are more long-lasting. And you could have a situation in which you cap the exclusion or eliminated the exclusion and, yes, that would drive health care inflation down, but it also could drive quality of health care down because you're not doing anything to change a perverse system in which we pay for more medical care as opposed to medical care that actually makes us healthier.

In other words, as long as a healthcare plan is still indiscriminately reimbursing doctors and hospitals on a fee-for-service basis, the only way it can cut costs is to cut coverage -- and Americans' health plans are already riddled with holes, rising copays, uncovered treatments, lifetime benefit caps. Obama is saying that he does not want to mandate private sector benefit cuts until those cuts will be directed at unnecessary care -- MRIs for every muscle strain, Caesarians for every slow birth, unnecessary prostate cancer operations, proton radiation, the whole panoply of wasteful testing, operating, medicating that Americans have been trained to expect -- rather than against necessary preventive and catastrophic care, which so many plans today cover inadequately.

Obama did tell Hiatt that he'd be open to a cap on the healthcare tax exemption set above today's top spending levels. Obama's thinking/political framing of this issue is structurally similar to his approach to corporate taxation: he is open in principle to reducing the corporate tax rate if and when Congress closes the huge array of loopholes that make the effective corporate tax rate so much lower than the nominal rate. In both instances he is seeking to avoid change with unintended consequences -- or perhaps with stealthily intended consequences -- by insisting that structural change precede a reform that will misfire without it.

In the Hiatt interview, after pivoting away from the tax exemption cap, Obama placed his cost curve-bending chips on "MedPac on steroids," a commission empowered to set reimbursement rates and treatment emphases for Medicare and Medicaid. He cast MedPac as perhaps the chief vehicle for tackling the real fundamental task-- moving the healthcare payment system away from fee-for-service and towards some kind of global payment system, where doctors and hospitals are paid per patient, with performance incentives.

At this point, I am confident that both the House and the Senate bills will contain what we've been calling MedPAC on steroids, the idea that you continually present new ideas to change incentives, change the delivery system, understanding that because this is such a complex system we're not always going to get it exactly right the first time, and that there have to be a series of modifications over the course of a series of years, and we have to take that out of politics and make sure that an independent board of medical experts and health economists are providing packages that are continually improving the system. So I think there's general consensus that that is one of two very powerful levers to bend the cost curve.

The role that Obama envisions for MedPAC is a window on the way he conceives of systemic change generally. He's what you might call a radical incrementalist. Recognizing that the fundamental task in tackling healthcare inflation is to change incentives -- end fee-for-service -- he also recognizes that the payment system cannot be changed by fiat, that the task needs to be done in stages, experimentally, on the basis of what is shown to work. To empower MedPAC in Obama's view is to create a "powerful lever" to "move this big battleship a few degrees in a different direction" and set the stage for a long series of subsequent reforms.

The Times points another arrow at fee-for-service medicine

Fee-for-service, fee-for-service, fee-for-service. Gradually the healthcare debate is centering on this major driver of runaway healthcare inflation. Atul Gawande and David Leonhardt have helped shine the spotlight on doctors' incentives to provide unnecessary care; Peter Orzag and Barack Obama (see "p.s." at link) have seized on their examples and language.

Today, the New York Times is front-paging a new poster child for putting doctors on salary. Gardener Harris profiles Bassett Healthcare, "a modest hospital of 180 beds" in Cooperstown, NY, to demonstrate that you don't have to be the Mayo Clinic to improve outcomes by realigning incentives, a.k.a. putting doctors on salary:

Bassett — like the Cleveland Clinic and a small number of other health systems in this country — pays salaries to all of its doctors. No matter how many tests or procedures are performed, they take home the same amount of money. Medical costs at Bassett are lower than those at 90 percent of the hospitals in New York, while the quality of care ranks among the top 10 percent in the nation, surveys show.

As at the Mayo Clinic and other treatment centers that have eschewed fee-for-service, the payment structure goes hand-in-hand with coordinated, integrated patient care:

Michelle Griffiths, 41, of Edmeston found a lump on her breast six years ago. During cancer care at Bassett, Ms. Griffiths’s appointments to see her oncologist and primary care doctor are often scheduled on the same day. One doctor will sometimes accompany her during a procedure performed by another, and each has her complete medical history.

“The communication amongst all of my doctors is impressive,” said Ms. Griffiths, who works as a database administrator for the insurance company New York Central Mutual. “They always call each other or shoot each other e-mails.”

Such coordinated care is a hallmark of integrated health systems with salaried doctors, like Kaiser Permanente, the Mayo Clinic, the Veterans Administration and the Cleveland Clinic.

Harris also highlights the political conundrum: everyone seriously engaged in healthcare reform knows that fee-for-service is a major inflation culprit. But as in the Aesop's fable in which a group of mice agree that they should hang a bell around the cat that's been gobbling them up, no one knows how to "bell the cat":

“Everyone knows that the Bassett model is the right model,” said Senator Charles E. Schumer, a New York Democrat involved in negotiations over health care legislation. “The question is, How do you get from here to there?"

In response, I wonder why the unanamious recommendations of the Massachusetts Special Commission on the Health Care Payment System are not getting more attetention. The Commission's central proposal takes direct aim at fee-for-service, proposing a five-year transition to "global payment systems" that pay doctors and hospitals per patient, with performance incentives, and adjustments for region, income, clinical risk and other factors. The recommendations appear to have broad, if cautious and equivocal support. The Times' Kevin Sack reports:

Top state legislators said that they recognized the political challenge in enacting such a plan but that Massachusetts’ circumstances demanded it. Senator Richard T. Moore, co-chairman of a joint legislative committee on health care financing, said he expected to hold hearings on the recommendations this fall. The committee’s other leader, Representative Harriett L. Stanley, said, “It’s going to be a very long haul, but it’s a trip worth taking.” [snip]

Interest groups with heavy stakes embraced the proposal, but warily.

“Hospitals want to be part of this historic endeavor,” said Lynn B. Nicholas, president of the Massachusetts Hospital Association. But Ms. Nicholas added that “the success of moving to a global payment system is not a foregone conclusion” and expressed concerns about how risks would be adjusted and how start-up costs would be covered.

The president of the state medical society, Dr. Mario E. Motta, also urged caution. “A big transition like this has never been done on such a broad scale,” Dr. Motta said, “so it must be done very carefully, deliberately and
thoughtfully.”

In Massachusetts, turning the battleship toward global payment systems appears to be recognized as a necessity if the 2006 reform plan that's already achieved near-universal coverage is not to bankrupt the state, as it's beginning to do. (Of course, the state has only taken a baby step toward reforming the payment system.) Will federal legislation have to follow the same road - extend coverage first, deal with the resulting financial emergency as it takes hold?

David Leonhardt tries to do Obama's job for him

The New York Times' David Leonhardt seems to have taken it upon himself to drive home to Americans that the nub of healthcare cost containment is removing doctors' and hospitals' incentives to prescribe unnecessary care. From today's front page article:

On Thursday, Mr. Obama will visit another example he likes to cite, the Cleveland Clinic. Its successes capture what real reform would look like. Like Mayo, the Cleveland Clinic pays its doctors a salary, rather than piecemeal, and delivers excellent results for relatively little money.

“I came here 30-some years ago,” Delos Cosgrove, a heart surgeon who is the clinic’s chief executive, told me. “And I have never received any additional pay for anything I did. It never made a difference if I did five heart operations or four — I got paid the same amount of money. So I had no incentive to do any extra tests or anything.”

This is the crux of the issue, economists say: the current fee-for-service system needs to be remade.

In shining the spotlight on pay structures, Leonhardt seems to be trying to do the work he thinks Obama should be doing. He frames Obama's core task as teaching Americans that we're all overpaying in hiddden ways for healthcare to the tune of $6,500 per year per family, if you compare U.S. healthcare costs to those of typical wealthy countries. He complains that Obama has so far failed to invest his political capital, either to educate Americans or to fight for cost containment provisions with teeth:

Mr. Obama says many of the right things. Yet the White House has not yet shown that it’s willing to fight the necessary fights. Remember: the $6,500 tax benefits someone. And that someone has a lobbyist. The lobbyist even has an argument about how he is acting in your interest.

These lobbyists, who include big names like Dick Armey and Richard Gephardt, have succeeded in persuading Congress to write bills with a rather clever feature. They include some of the ideas that would cut costs — but defang them.

Interestingly, Leonhardt then dismisses one element of proposed House leglislation that would address the incentives problem as thus "defanged":

One proposal would pay doctors based on the quality of care, rather than quantity, but it’s a pilot project. Doctors who already provide good care may well opt in; doctors providing wasteful but lucrative care surely will not.

Perhaps. But to change the incentive structure for doctors, hospitals and other caregivers is to move an enormous battleship. The radical, unanimous proposal of a blue-ribbon helathcare commission in Massachusetts to replace fee-for-service with global payment systems proposes a five-year phase-in, noting the complexities: ""global payment rates will include adjustments for clinical risk, socio-economic status, geography (if appropriate), core access and quality incentive measures, and other factors." Perhaps a pilot program is not a bad place to start on the Federal level, in concert with other cost containment measures like a Medicare oversight commission to set rates and determine reimbursable procedures.

See also:
Massachusetts Commission cuts the Gordian Knot on healthcare costs
Leonhardt seconds Gawande: put doctors on salary
Orzag hones in on doctors' incentives