Payment incentives have been in the news a lot lately. There is a vast public outcry against bonuses awarded to top executives of banks which hemorrhaged billions in 2008, and many have been asking “shouldn’t they just do their jobs for their pay – never mind for ridiculous bonuses?”
There is a parallel debate about incentive pay for physicians, and I'd like to point out a journal article last month suggesting that we should get back to professionalism as a motivation to provide high quality care, rather than incentive payments.
Pam Hartzband and Jerome Groopman in New England Journal of Medicine last month use illustrations from the behavioral economics literature to suggest that the monetization of health care leads to decreased medical professionalism and could lead to a decline in the quality of care. They use an example where offering paltry compensation (50 cents for helping move a couch) leads to less participation than no reward at all. However, the behavioral economic literature is also replete with examples where meaningful incentives, financial and otherwise, do drive behavior. In health care, we know that self-referring physicians have higher utilization , and high marginal profit rates are associated with oversupply. The authors themselves note that increased social status, decreased on-call time, and enhanced incomes have led many aspiring physicians away from careers in primary care.
Hartzband and Groopman argue against a system where caregivers are “constantly primed by money.” Indeed, this is the fundamental argument against the fee for service payment system predominant in the US. Paying for bundles of care (or capitation) would allow innovation to improve efficiency, whereas the current payment system rewards increased volume and intensity of services rather than coordination of care. Financial systems alone will not alone lead to defect-free, affordable health care; however, it will be achieve a high performance health care system without better-aligned financial incentives. We need payment reform and strengthening of communal relationships to improve quality, access and cost-effectiveness of health care.
Cost Savings in Obama's Plan: The Congressional Budget Office Begs to Differ
Stuart Altman and his colleagues from the Heller School at Brandeis University gave a day-long primer on the future of health care finance at the Massachusetts Medical Society on January 31. The voluminous slides are available on this website.
Stuart Altman showed the graphic above, from a December report from the Lewin Group, demonstrating potential cost savings from the Obama plan. As you can see, there are substantial savings posited from medical home demonstration project ($133B over 10 years), adoption of health care IT ($111B over 10 years), comparative effectiveness research ($40B over 10 years) and disease management ($43.6B over 10 years).
The conference also reminded me that the Congressional Budget Office did a pretty comprehensive review in December of the estimated impact of 115 health care options on the federal deficit. CBO, a critical and neutral party, reviewed the available evidence for each potential option, and doesn’t find that many options with big cost savings. Remember, of course, that some initiatives could raise the federal deficit even if they lower overall health care costs.
1) Health Care IT (Option 46) would only save money if there were substantial (5%) penalties for non-adopters.
2) Adoption of medical home (Option 39) would increase the federal budget deficit by $7.8 billion over the next 10 years.
3) Disease management is not listed listed as an option in the 12/08 CBO report , and the Medicare Health Support project did not show substantial savings and was not completed. An accompanying CBO report suggests that there is not evidence of substantial cost savings from disease management.
4) Comparative effectiveness (Option 45) would increase the federal budget deficit by $860 million over 10 years. It would save $8 billion in health care - but most of this is not funded by the feds.
I’ll post more on the CBO report over the next few days – suffice it to say that most of the efforts that would actually lower the deficit substantially would either increase the uninsured, shift costs to consumers, or cut provider per-unit reimbursement substantially. As we get set to spend close to a trillion federal dollars in a stimulus package, it seems unlikely we will pursue a federal health care strategy that cost-shifts substantially away from the federal government in health care.
Small Employers Struggling With Cost of Health Insurance
The New York Times has a front page story today of the struggles that very small employers face in maintaining health insurance for their employees. It quotes the Kaiser Family Foundation - Health Research Educational Trust 2008 survey (images above) which shows that employers are bearing most of the cost increase of health insurance, and small employers have cut back on the percentage of employees insured. If anything, the KFF-HRET data understates the problem, since this survey defines small employers at <200>
The problems for small employers revolve mainly around the size of the risk pool. Small employers are more likely to opt into insurance if their employees (or they themselves) believe they will have substantial insurance costs. They have more information than the insurance plan (which knows about this information asymmetry). Further, they are more likely to employ a sick relative or friend who needs insurance - and again, the insurers know this. Therefore, where legal they seek to do "medical underwriting" and exclude the people who need insurance most, or exclude certain conditions.
What can be done?
Some states require "community rating," which means all small employees would pay the same rate. The bad news is that small employers with young, healthy populations would therefore have to pay higher rates than in an unregulated market. "Guarantee issue" can also prohibit exclusion of individuals (Massachusetts has this), and states can regulate the exclusion of conditions (imagine a hypertensive purchasing an insurance plan that excluded future heart disease).
A mandate to purchase insurance eliminates much of the problem of adverse selection -- although it's hard to push for mandate in our "free choice" culture. The Obama health plan does not include a mandate, while Hillary Clinton's (and Tom Daschle's) does.
The government can also set up a high risk pool for those unable to purchase insurance on the open market (the ultimate in adverse selection), or a "connector" to aggregate many small employers together. This works best with a mandate to avoid adverse selection.
Finally, the government can offer "reinsurance" for health plans, so that patients with catastrophic illnesses (i.e. >$50,000 per year) have some or most of their expenses removed from the insurer's obligations. This was part of John Kerry's health plan, and many of Obama's health advisers have proposed this. Stuart Altman recently told an audience at the Mass Medical Society that this was getting little traction in Washington, though.
Some of the answer must lie with the delivery system. We offer episodic, innovation-driven, very expensive health care - and if the costs continue to rise at the current rate, we will likely offer this to a smaller portion of the population.
