Monday, September 14, 2009

Response to Response to My Latest Blog on Top-Down Vs. Bottom-up Reform

Response to my blog of yesterday.

From Steve:

"I agree with the future shortage issue. The rationing point is a bit complex.
Anyway, how do we resolve Medicare does not pay doctors enough, and often hospitals for that matter, with Medicare going broke? Who do you think is going to successfully address Medicare costs and how? Bottom-Up sounds good, but I do not see how this works in practice. Private insurance has shown no ability/willingness to hold down costs."

"I enjoyed the interview with Dr. Cooper. Penn grad '85 here. Since graduation I have spent time in the military, moonlighted quite a bit and now work at several places in PA. My experience and what I have seen of physician behavior is a bit different than his. I see guys who own MRIs and PT services making self referrals. I see the consultants coming in to make sure we don't :leave money on the table." Yes, most docs remain good guys, but there is a lot more bad behavior, questionable behavior, than he has seen."

My response to his reponse

Excellent point about Medicare not paying doctors and hospitals enough yet going broke. The main reason, I think, is that Medicare has no way to control the number of procedures being down in a fee-for-service environment.

Further, Medicare has neither the staff, nor the expertise, nor the political stomach to deny or review requests. To control costs, Medicare simply arbttrarily rachets down fees for doctors , and more and more doctors respond by declining to accept new Medicare patients. Or doctors do more tests and procedures – either to meet patient expectations and to meet their bottom-up lines.

Insurers, on their part, to keep their networks open and to offer needed services, have to negotiate higher fees than Medicare to keep respectable networks of providers.

And so the cycle goes.

Bottom-up means payments refers to services and innovations set at local and regional refers to services and payments in private markets , rather than by what the government dictates from the “top-down” by fiat.

Health costs, in my opinion, will be best controlled and quality maintained by health consumers spending their own money and truly understanding what things cost. This bottom-up approach will vary by region – in California by capitation, in Massachusetts iby budgets for episodes of care, in Pennsylvania by the Geisiinger approach with integrated care coordination with outcome guarantees for some high-ticket procedures. More globally,i.e. nationally, by HSAs with high deductible accounts or by cross-state shopping for the best deal, or by doing away with “community rating” or comprehensive “ standard” benefit plans. The governnment could seize the initiative by opening up FEHBP (Federal Health Benefit Plans) to all rather than just government employees and to national politicians. I would like to point out that “bottom-up” HSAs are working beautifully in Minnesota , not exactly a conservative state, which leads the nation in HSA membership, and where employers have experienced health care cost drops of 30% to 50% in those with HSAs. I would also note another “bottom-up” approach “work-site clinics,.“ These are being set up by half the corporations across the land, with more than employees in one localtion, with 20% to 40% cost savings. I have interviews in Obama, Doctors, and Health Reform with HSA and work site clinic leaders.

Cost control will not be easy, and much of it will be ironic and contradictory, as exemplified by those who say, “ I hate socialism but don’t mess with my Medicare.” Well, someone has to mess with Medicare. It is going to financial hell in a handbasket. To use it as a model for reform defies logic. To save itself, Medicare is going to have to reform, partly by learning lessons from the hated private sector, where costs are going up at a 30% lower rate than Medicare.


steve said...

Would you mind giving the source for the 30% faster for Medicare? I have been using data from the link below, Office of the Actuary, National Health Statistics Group. If you look at Table 13, over time Medicare appears to be increasing at a slower rate than private insurance. If you limit it to more recent time periods, you can get Medicare increasing faster. My problem with that being that insurance companies make some money off of their investments. I suspect theirs look like my 401k, so I am expecting, and early reports seem to confirm, pretty large increases coming soon.

Thanks for explaining your view of bottom-up. I have long advocated that whatever plan we adopt should include exclusions for states or groups of states that wish to try something different. I have been disappointed that only Massachusetts has attempted this on a statewide basis, as far as I know.

My own, modest, health care plans have included HSAs, though I am concerned about selection bias in existing models. If we are not to choose any other model from around the world which is cheaper and provides quality care, I would prefer larger trials. Part of my problem with HSAs, indeed the whole free market idea, is the asymmetry implicit in medical decisions and the cross current incentives.

It seems to me that the medical transaction violates basic first principles, ie, both parties are not truly free to walk away if they do not like the deal. Maybe for cosmetics, but not really for most procedures, especially in small towns. Next, many of my patients are scared, stressed, confused or not very well educated on medical issues. They just nod their heads and say yes to whatever I tell them. I think that is how people really behave, not like the all knowing, cool, emotionless creatures writing on blogs (yes, I do get the occasional hper-informed internet expert). It seems unlikely that they will make the best economic decision.

Lastly, it may be verboten to discuss, but I certainly know docs in my community who know how to make money from the system, be it private insurance or Medicare. Most of what they do is legal and does no harm to the patient, it just makes them a lot of money. These guys are good, great actually, salesmen. How will HSAs or free market remedies, assuming there is back up insurance, address these people? These guys are really just practicing free market medicine by optimizing their profits.

My own POV, is that this at least partially stems from malpractice issues. Some of the rewards inherent to the profession have been lost. People compensate with money. Also, there is big money to had in medicine, and the marketing guys have arrived in full force.

Thank you for your prior response. My basic libertarian leanings make me hope that there can be more inclusion of market principles. My observation of people and their behavior leaves me wondering.


Richard L. Reece, MD said...

According to a study by Jeffrey Anderson of the Pacific Research Institute, since 1970 - even without the prescription drug benefit, Medicare's costs have risen 34% more per patuient than the combined costs of all healthcare, apart from Medicare and Medicaid.