Cutting Employer Healthcare Costs

Over the past 20+ years larger companies have tried many tactics to control the growth of their healthcare spending, including HMOs, consumer-directed healthcare, wellness programs, value-based insurance design, selective contracting for high-cost procedures, personal health assessments, etc.  While some of those efforts temporarily reduced employers’ healthcare spending, they did not change the long-term trends, in part because they only targeted employees and did not focus on high or very high cost individuals – many of whom are not active workers. [A recent Health Affairs article analyzing conditions associated with employee healthcare spending reflects this “searching under the streetlamp” phenomenon.]

Company Health Benefit Costs Do Not Equal Employees’ Healthcare Spending

The cost of providing health benefits for most larger companies includes not only the health benefits for employees, but also costs for retirees, and spouses and dependents of active workers. In addition, these “other” groups represent a disproportionate amount of health benefits costs because they are generally older and/or in poorer health. The importance of this factor is depicted in the chart below that illustrates how healthcare spending is not uniform across a group of people, e.g., all the individuals covered by a company’s health plan, or Medicare beneficiaries. While the actual spending per person changes significantly depending on the specific group, the general shape of the curve remains the same with about 5-10% of the people accounting for 20-40% of all the spending. For companies’ health benefit programs – as mentioned above – retirees, spouses and dependents make up a disproportionate share of individuals in the yellow and red zones.


[Y-Axis = Percentage of spending;  X-Axis = Percentage of people in the group]

In addition, these high cost individuals are also the people who have the most complicated (and usually chronic) healthcare problems, and thus whose healthcare quality and health status can be improved the most.

Challenges in Targeting High Cost Individuals

Companies have typically focused health improvement and wellness initiatives on active workers because they were the individuals the company had the greatest direct interaction with, i.e., they were the people seen in the workplace. This situation reflects the analogy about potential analytical biases where a person will search for dropped keys under the streetlight because that is the only visible area, i.e. information about what is outside the arc of the streetlight is unavailable.*

[Source: “Fixing the US Healthcare System,” 2008 – Unpublished]

While some employers are starting to focus initiatives on high and very high cost individuals, they face several challenges in creating and implementing these programs.  For example, since these individuals are more likely to be spouses, dependents or retirees under the age of 65, it can be more difficult for companies to reach them.  Other challenges that companies’ health benefits programs face in interacting more closely with these people are:

  • HIPAA privacy concerns.
  • For retirees under the age of 65, expecting that they will soon by on Medicare, and thus the company may not see any economic benefits.
  • Lack of potential benefits to the company by improving health and productivity for people who are not active workers. (However, improving the health of high cost dependents and spouses of active workers can reduce the employees’ absenteeism by decreasing the time they spend providing caregiving and care-assisting help to their family members.)

How to Improve Health Delivery and Control Spending for High Cost Individuals

Controlling healthcare spending for high cost people is not easy, nor is it inexpensive. Actions to control spending for these individuals generally involves making care more efficient and reducing errors and complications – which also improves the individual’s health status, i.e. it is a Win-Win situation with improved clinical and economic outcomes.

Specific actions to control spending for high cost individuals includes initiatives such as:

  • Case management e.g., nurse case management and/or tele-medicine
  • Team based care e.g., patient-centered medical homes
  • Integrated care e.g., quality monitoring and fiscal incentives for quality and economic performance

The common theme among these actions is that they are all designed to ensure that nothing falls through the cracks leading to very expensive cascades of poor clinical outcomes and complications. An additional benefit is that these initiatives can also help direct care for people with costly chronic conditions towards the places/locations/providers that are more efficient and higher quality – and often less costly. (Some companies are doing this for elective surgeries, and incentivizing individuals to use specified providers by offering reduced or zero cost sharing, as well as paying their travel costs.)

Does Better Care for High Cost Individuals Pay Dividends?

Financial calculations can quantify the direct value of these efforts. For example if high and very high cost individuals are costing the company more than $10,000 or $25,000 per year, an investment of $1,000, (such as for intensive case management), that reduces spending by 10% provides at least a break-even ROI.  Spending reductions of this magnitude are very achievable for people with complicated diabetes or congestive heart failure. And some healthcare innovations have been shown to reduce spending by 20-30% for people with those conditions. However, not all “case management” or “disease management” programs are the same. As a general rule, “you get what you pay for,” i.e., programs that are less expensive and/or not integrated into the patient’s healthcare team-flow, tend to not benefit individuals with serious chronic illnesses – or deliver a positive ROI. (This was evident in the Medicare Case Management Demo I referenced in a 2009 article on this blog.)

Of course, not all people who fall into the high cost category can have their spending easily controlled through better case management or integrated team-based care. Thus, companies will not see a positive ROI through better healthcare management for all high cost individuals. Some diseases and conditions are just unexpected, inherently expensive, or have long lag times before positive benefits are seen. For example, cancer rates (and spending) can be reduced through exercise, nutrient and smoking cessation – as well as early detection – but the timeframe for those improvements can be long.

Accidents outside the workplace are also frequently cited as high cost medical cases that cannot be prevented. However, alcohol (or abuse of other substances) and/or mental health conditions are often contributing factors for accidents – factors which can be addressed through the healthcare system.  Unfortunately, because of the fuzziness of the ROI calculations, privacy issues, or other concerns, these areas have not generally been a focus for employers.  In addition, in some professions, these medical problems can lead to loss of employment or advancement opportunities, making them especially difficult to address as part of a person’s comprehensive medical care.

Identifying High Cost Cases

Before value-producing interventions can help high cost individuals, these people need to be identified so that they can be engaged to participate in these programs. Fortunately, there are increasingly sophisticated and efficient ways to identify high cost people:

  • Claims analysis conducted by the employer’s insurance company.  (Having the insurance company analyze the claims data creates an important information firewall to address HIPAA privacy concerns. Because of privacy issues, an insurance company – or managed care company – is also in a better position to directly contact and engage individuals for participation in any programs.)
  • EMR database analysis by individual health systems or large provider groups.
  • Asking physicians to identify their medically fragile and high utilizing patients, and then engaging/enrolling them in the appropriate care management programs.  (However, this approach works best for community-wide initiatives rather than individual employer populations since it could be inefficient and unusual for physicians to separately analyze or engage their patients by employer.)

Preventing High Cost Situations

A related set of challenges is identifying people who are not yet high cost individuals, but are sliding toward that end of the scale, (e.g., pre-diabetes, unrecognized diabetes, high blood pressure, smokers, etc.), and preventing them from becoming high cost cases. Some individuals may be easy to identify, (particularly with a high quality EMR system that can do practice-wide analyses), but changing an individual’s potential healthcare trajectory is hard. Changing community norms and expectations for smoking, exercise, and nutrition can be effective foundational actions – and are good initiatives for reaching non-workers such as retirees and spouses.  However, changing personal behaviors on a shorter time frame generally requires one-on-one engagement and encouragement.  This can start with the person’s medical care team, with a non-physician clinician, (such as a diabetic educator, nurse specialist, or health coach), who can provide on-going support as well as referrals to services and resources in the community through organizations such as the YMCA.

Conclusions

Controlling the long term growth of the cost of employers’ health benefits programs, (i.e., bending the “cost curve”), requires focusing on individuals who are costing the most, as well as preventing individuals who are smoldering with early-stage or unrecognized conditions from exploding into expensive complex chronic disease situations.  For self-insured companies, investing in disease and case management programs, tools, and services requires resources, spine, and compassion, but the financial and human-value returns (including company loyalty and appreciation) can be significant. Few smaller companies can marshal the time and resources for these programs, but as technology improves and health insurance markets become more efficient, these services should become more readily available through purchased insurance products – including those offered through the ACA created state-based insurance exchanges.  This should happen with the next 2-5 years since, “it’s where the money is.”

 

* The parable about looking for lost keys on a street at night illustrates the pitfalls of operating with limited information while trying to solve a problem.  The tendency is to look under the streetlights because that is the only place where you can easily see, i.e., this is where there is easy access to the “data” about what is on the ground to see if the keys are there or not. However, it is also possible that the keys are outside of the corona of the streetlights.  But looking outside those circles takes both imagination to realize that the street exists outside the circles of light, having access to data about what lies outside the circle of light, (possibly with “technology” such as a flashlight), and making the effort to seek and understand this “new” data. [Source: “Fixing the US Healthcare System,” 2008 – Unpublished]

Doctors are Not Terrorists, But…….

Changing behavior is very complex.  Many management books, philosophical tomes, and academic psychology articles have been written on this subject, so I’m going to simply and quickly get to the connections among doctors, terrorists, and health reform.

1. Changing people’s behavior requires appealing to basic motivating factors. Different individuals have different motivators, but everyone has them.

2. Physicians are a key part of the healthcare system.  Improving quality and controlling healthcare spending will require physicians to do some things differently – particularly how they work with other clinicians (i.e., in teams), prescribe treatments, order tests, make referrals, and interact with patients and their families.  (Physicians receive about 20 cents of every healthcare dollar, but control about 80 cents. And an old axiom is that the most expensive piece of medical equipment is a pen in a physician’s hand – although soon it may be their hands on a keyboard.)

3. Money is a key motivator for many people…. But it’s not the only one. For many clinical thought-leaders and decision-makers, money may be of secondary concern.

Physicians, and Terrorists, and Everyone are Motivated By Specific Factors
I’ve long believed that aligning non-financial motivators is crucial for successful health reform because success will require changing individual attitudes and actions. But I didn’t realize how broadly powerful non-financial influencing factors could be until I read “Counterstrike,” the recent book by Pulitzer Prize winning journalist Eric Schmitt and his co-author Thom Shanker. This book describes how, in the mid-2000s, US anti-terrorism organizations saw markedly greater success by shifting their strategy from prioritizing “find-capture-kill” operations to taking actions that pivot potential terrorists’ motivational forces – in part by similarly pivoting the support potential terrorists receive from their families, communities, and religious leaders.  Some of these non-financial factors are:

  • Personal reputation
  • Personal glory
  • Network cohesion and dependability
  • Well-being of their family

As can be seen from this list, some of the factors that influence terrorists are similar to what could also motivate physicians, i.e. professional recognition, influence within their organizations, community status, etc.

Desired Outcomes
The face of successful health reform will be physicians enthusiastically doing things differently because they recognize that their actions are making their patients and communities healthier, making their own lives better, and also easing the “economic dragooning” that the healthcare system was imposing on society.

Successful Health Reform = Changing Physician Behaviors
Achieving these outcomes will depend upon changing physician behaviors, as described in #2 above. And while financial incentives* supporting those behavior changes are being incorporated into new delivery models – such as Medical Homes and Accountable Care Organizations – the organizations that successfully build these new models will utilize other motivating factors in their quest for higher quality, lower costs, and better care experiences for both physicians and patients.  As I noted in the opening paragraph, many pages have been written on changing behaviors, but the fundamental elements were described in general terms by Everett Rogers in his book, “Adoption of Innovation”:

  1. Relative Advantage
  2. Compatibility (with existing or connected practices and actions)
  3. Simplicity
  4. Observability
  5. Trialability

These principles are important because changing behaviors is synonymous with adopting innovations, e.g., using an ATM rather than a bank teller, writing on a computer rather than a typewriter, inhaling insulin** rather than injecting it. And thus, achieving successful behavior changes and producing our desired three aims will require change leaders to incorporate these elements – and both financial and non-financial factors – into their strategies for motivating physicians, patients, and all groups who make up the healthcare system.

 

*These incentives are generally described as rewarding value and quality rather than volume of services, and include pay-for-performance, shared savings/risk, bundled payments, and capitation.

** Not all innovations are successful – at least in their first iteration.

8 Variables Fueling Increasing Healthcare Costs

At a recent meeting about implementing the Accountable Affordable Care Act, Karen Ignagni, (President and CEO of the America’s Health Insurance Plans), listed 8 variables that are fueling increasing healthcare costs – and thus need to be addressed to “bend the cost curve”:

  1. Prices of services (Not insurance premiums, which mostly reflect input prices, i.e., the cost of healthcare services and products.)
  2. Variations in care delivery practices and how that impacts safety (She also suggested that transparency and reporting measurements for 10-12 key conditions would significantly help reduce care variation – which can improve quality and drive down costs)
  3. Measurement (Alignment between public and private sector reporting requirements to make #2 more feasible for healthcare delivery systems already struggling with data collection, analysis, and reporting.)
  4. Value Based Benefits (Particularly getting people with chronic conditions into stable, care coordinating systems)
  5. Impact of consolidation – both horizontal and vertical (See the recent Synthesis Project Brief on this topic)
  6. Scope of practice (Enabling clinicians at all levels to practice at the top of their capabilities, which will help address growing clinician shortages)
  7. Building and Construction (Other people at the meeting noted the problem with building and infrastructure.  Don Berwick noted “stranded capital” is a challenge for delivery systems, and another speaker noted that most healthcare organizations were literally designed and built to maximize revenues under the volume incentivizing fee-for-service system rather than prioritizing value or community health status)
  8. Power of States (Non-Federal government officials and regulations are important determinants of public health activities, clinicians scope of practice, and collaborations among local stakeholders)

Karen’s list – like Don Berwick’s list from my previous post – is a very valuable tool that I’ll keep in mind when evaluation local, regional, and national proposals for controlling healthcare spending.

P.S.
I’ve known Karen for about 20 years, since she was the health lobbyist for the AFL-CIO and we were on a panel taking about how to improve primary care. The discussion mostly focused on how to increase the number of primary care clinicians and access in the era of emerging managed care. I particularly remember that part of the discussion involved the hazards of calling primary care clinicians “gatekeepers v. “care coordinators.” It all sounds a bit familiar doesn’t it?

Why Healthcare Spending is Slowing – A New Normal?

The growth in healthcare spending has slowed in recent years.  Many experts and pundits have sought to explain why – while also worrying, (or predicting), that this slowing is only temporary, i.e. past performance will predict the future.

Healthcare Delivery and Financing are Dynamically Evolving

The future will be significantly different than the past because our healthcare system, society, and economy are evolving into what might be called a “New Normal” state.  Assuming current priorities and pressures continue, public and private sector organizations at all levels will increasingly emphasize value¹ in their decisions about spending and preferences for healthcare services – including choices about substituting one treatment option for another.  For public entities, these choices involve coverage and budgeting for programs ranging from Medicare, Medicaid, and Veterans’ healthcare, to benefits for government employees – as well as rules for insurance exchanges. For private organizations, these choices range from health insurance benefits provided by large employers to the decisions individuals make for their insurance coverage – as well as the clinical and lifestyle choices individuals make inside and outside doctors’ offices.

While those choices will collectively mold our future healthcare system, many changes have occurred in the last five years that are creating a new environment for making these choices and pushing us into a “New Normal” state, i.e., these evolutionary forces have already started bending the cost/spending curve.  This progress towards more value oriented healthcare will continue unless the driving forces are hampered, hindered, or blocked by future actions.

The Times They Are a-Changin”
                             Robert Zimmerman

Listed below – in my estimated rough order of importance – are reasons why healthcare spending has slowed and will continue to be less than had been projected.

  1. Dipping Economy: The economic slowdown has decreased the amount of healthcare people are seeking – as well as creating a temporary disruptive environment for making other changes in stakeholders’ attitude and latitudes of practice. Whether the decrease in healthcare utilization is because people have mostly declined or delayed unnecessary or truly discretionary healthcare services and treatments, or are foregoing many important preventive actions and therapies – which will lead to higher costs and morbidity in the future – remains to be determined.
  2. Private Insurance Benefit Design Changes: People with private insurance have shifted to higher deductible plans², (a.k.a. consumer directed plans), which have lower monthly premiums and higher deductibles, and sometimes increased co-payments/co-insurance.  This change has been in both employer sponsored plans – where individuals may not have a choice – as well as for people (and families) buying insurance as individuals or through small business plans.  Like #1 above, economic incentives have led people to be more selective in what healthcare services and products they are using, but the wisdom of these choices and their long-term effects on costs and quality of care (and life) are not yet fully understood.
  3. Medicare Outpatient Prescription Drug Benefit: The Medicare outpatient prescription drug benefit, (a.k.a. Part D), started in 2006.  If the general premise that prescription medicines are the most clinically and cost-effective form of healthcare is correct, then the greater use of prescription medicines by Medicare enrollees should be reducing spending growth in other Parts of Medicare, e.g. hospitalizations and doctor visits.
  4. Mindset Changes for Patients and Clinicians: The economic downturn, various provisions of the Accountable Care Act, and changes in healthcare benefit design – particularly more high deductible health insurance plans – are making patients and clinicians more attuned to the economic implications of healthcare choices and the value of integrated, multidisciplinary, (a.k.a. team-based), care delivery. Resistance to shifting to such integrated care from the old one-patient/one-doctor Marcus Welby, MD-esque mindset will impede progress in some areas – particularly the adoption of EMRs and regional health information systems, which require up-front spending, and where the long-term benefits are derived from providers participating in such team-based care paradigms.
  5. Change to Healthcare Delivery System:
    1. Integrated care delivery systems and the purchase or affiliation of physicians’ practices;
    2. Geographically uneven changes;
    3. Accountable Care Organizations (ACOs);
    4. Patient Centered Medical Homes (PCMH);
    5. Concierge medical practices;
    6. Greater use of tele-medicine for remote monitoring, management, and consultations;
    7. Greater use of non-physician clinicians, community based healthcare coordinators, and home care services – including more old-fashioned house calls.
  6. Change to Financial Incentives: (Besides high-deductible insurance plans)
    1. Pay for Reporting (P4R) – usually tied to quality metrics, but also used for EMR capabilities;
    2. Pay for Performance (P4P) – similar to P4R, but for actually performance, not just reporting;
    3. Global or bundled payments, e.g. ACOs shared savings and risk sharing arrangements with Medicare and private payers;
    4. Non-payment for “never events”.
  7. Trans-Fat Labeling: FDA regulations have required food labels to list trans-fats since 2006, which has had a two-fold effect which should be driving down long-term health spending: Making people more aware of trans-fats as an unhealthy choice, and inducing food companies to both remove trans-fats from their products and advertise that fact. The results have been significant. Earlier this year the CDC reported that blood levels of trans-fats have declined from 2000 to 2009: “The 58 percent decline shows substantial progress that should help lower the risk of cardiovascular disease in adults”. I suspect that CBO or others didn’t project savings to Medicare or Medicaid from the food labeling requirement.  However, shifts to healthier lifestyles will need more environmental changes like these, e.g. bike sharing programs; walking paths; programs connecting individuals with shared goals; healthier food options at cafeterias, restaurants, and grocery stores, etc.
  8. Price Transparency and Accountability for Outcomes: More transparency about prices and quality of care delivered by individual clinicians and providers is placing greater pressure on healthcare prices. In addition, since healthcare prices in the US are higher than in other countries, globalization will increasingly create downward pricing pressure – especially for products and services where people, (or their specimens), can easily travel to other countries, such as for elective surgery, or DNA testing. [Note - accountability for quality, accuracy, and fraud prevention will be necessary to ensure that foreign services with lower prices represent higher value rather than just greater waste and harm to patients.]
  9. Innovations – Better Therapies, Diagnostics, and Prevention:
    Healthcare innovations range from biopharmaceuticals, genetic tests, HIT/tele-medicine, to validated best practices including checklists and clinical decision support.  Some innovations increase costs. Some improve clinical outcomes. Some do one but not the other. Some do both.  As metrics demonstrating the value of innovations become more granular and can be determined more rapidly, clinicians and providers will be under greater pressure to demonstrate – and be accountable for – the outcomes they are delivering. However, this will only occur in a balanced way as long at patient-centric quality outcomes are measured alongside economic outcomes.  The danger is that clinical outcomes will only be determined on a population basis, but then applied to patient care decisions without considering individual patient characteristics or priorities.
  10. Smoking Restrictions.  Restrictions on smoking in public places is reducing exposure to second-hand smoke.  Some studies have shown rapid declines in heart attacks for people working in restaurants and bars after smoking in those workplaces was prohibited.  (FYI – LEED certified residential buildings treat second-hand cigarette smoke as a pollutant and often prohibit smoking inside the entire building – including people’s apartments, as well as outside doors and windows. And the DC Department of Health has been publicizing the toxic nature of second-hand cigarette smoke from adjacent apartments.)
  11. Tougher Enforcement Against Fraud and Abuse. Cracking down on fraud and abuse may be reducing healthcare spending by deterring such criminal activity.  These efforts have been aided by improvements to healthcare IT – and this will only improve in the future.
  12. There certainly should be a 12th reason – since all good lists have 12 items – but I can’t think of one right now…. Any suggestions?

Not a Simple Picture

The dynamic interactions among many of the factors listed above makes it very difficult to determine the contribution each one makes to reducing healthcare spending for a particular condition, population, or US healthcare spending overall. For example, improvements to healthcare IT are enabling improvements to delivery system operations and financial incentives – which are also linked to each other.  Each of these also affect the mindsets of  patients and clinicians, i.e., HIT systems are elevating patients’ and clinicians’ expectations for better information about treatment options and less waste. And financial incentives are evolving to support the use of such information to achieve better outcomes. Together these and other changes are altering patients and clinicians attitudes and actions towards the entire healthcare system to be accountable for delivering greater value. This hyper-cross-connected situation is analogous to the biomedical research field of systems biology, which is seeking to understand how multiple physiological systems cause specific diseases – and how combination therapies may be needed to treat such complex illnesses.

 

1. Value in healthcare can be a tricky concept, but it generally encompasses the clinical and economic outcomes produced by the intervention compared to the total costs, risks, and potential adverse effects of the treatment option.
2. Haviland A., et. al., “Growth Of Consumer-Directed Health Plans To One-Half Of All Employer-Sponsored Insurance Could Save $57 Billion Annually,” Health Affairs, May 2012 31:5,1009-1015

Predicting the Future is Easy

Predicting the future is easy.  Predicting the future accurately, is hard.

Public policy deliberations about initiatives for improving healthcare delivery and financing are often handcuffed by an over-reliance on the accuracy of projections.  This happens because estimates of costs, disease prevalence, utilization rates, etc. are embraced as descriptions of inevitable futures, rather than as well-executed analytical projections with inherent probability ranges.  This metamorphosis from estimation to “factation” occurred though a predictable sequence:

  • Quantitative analyses yield estimates;
  • Estimates are published or presented;
  • Summaries of estimates are extracted from tables and slides;
  • These summaries – or “bottom lines” – are rhetorically converted by the media and others from “projections” and “estimates,” to what “will happen,” as in, “healthcare spending will be….” without any recognition of the underlying assumptions or likelihood of significant deviation.

And just like that, well constructed estimates built on assumptions of “what would happen assuming” scenarios are treated as inevitable and de facto futures.  (Note – This scenario can also occur for private sector initiatives.)

“Everyone is entitled to his own opinion, but not to his own facts.”
US Senator Daniel Patrick Moynihan

Experience  Can Lead to Clarity of Vision

Henry Aaron, the very experienced and respected Brookings Institution scholar, eloquently commented at an April 19th Atlantic Magazine Forum on the challenges of projecting healthcare spending – and particularly the expectations for savings from the ACA. [Click below for video of his Q&A on this topic – go to time code 36.00 minutes - or here for the Forum’s webpage and select Panel 1.]

Below are some of Henry Aaron’s comments:

 “There is an enormous range of uncertainty.  A very flat probability distribution that stretches a long way on both sides of the central estimate that CBO is making.”

The ACA “is first and foremost a declaration that the status quo is intolerable. And that we have to begin to try to do different things both to improve coverage and to change the delivery system… ”

And he concludes, “The key aspect of the bill is that we have started on a journey of change in our delivery system.  A lot of the elements can’t be stopped.  They have deeper roots than legislation. But don’t underestimate the importance of this legislation and the message that it sends.”

We Don’t Want to Repeat History – But Projections Are Dependent on Historical Precedents

The fewer precedents for a proposed change, the harder it is to accurately model the change’s effects. But failing to recognize this limitation of the process is to not learn from history.  Below are several examples of how projections have deviated far from their original estimates or have changed as the underlying assumptions are updated:

  • CBO projections for the 10 year savings from the ACA’s Independent Medicare Payment Advisory Board went from about $15 Billion in 2010, (shortly after the law’s enactment), to $2.8 billion in May 2011, to $3.1 billion in March 2012.
  • The Balanced Budget Act of 1997 included provisions to increase geographic access to Medicare managed care plans – which the law also renamed Medicare+Choice (M+C).  However, the opposite occurred.  As noted in a 2002 research paper, “[T]he number of contracted M+COs has dropped, from a high of 456 in December 1998 to 253 in December 2001. Total enrollment in M+COs has dropped from 6.7 million in December 1998 to slightly over 6 million in December 2001.”¹  In addition, beneficiary cost sharing went up for those individuals who remained in M+C plans rather than return to “traditional” Medicare. [Note – the M+C program was significantly revised and renamed Medicare Advantage (MA) in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.  These changes created significant growth in enrollment so that today about 25% of Medicare enrollees are in MA plans.]
  • The overall costs and individual monthly premiums for the Medicare Part D prescription drug program have been much lower than projected.  Competition from a greater number of plan choices may have kept the monthly premiums down, and it seems that lower enrollment numbers have kept the government costs below projections.
  • Estimates for national healthcare spending created in 2007 were significantly higher than what occurred in 2008-2010 – in part because of the unforeseen economic downturn.  (I’ll discuss this and other factors in greater detail in my next post.)

Bottom Line: Don’t be Fooled – Don’t be Foolish

Policy makers should strive to obtain the best possible analyses to guide, (but not dictate), their planning and actions.  They should also scrutinize and question the assumptions underlying those analyses so when important factors change, they aren’t fooled into foolishly thinking that the previous projections are still valid.

 “Half of what we know is wrong, we just don’t know which half.”
Day One Lecture to First Year Medical Students

 

1. Graham S. Updating Medicare Managed Care. Health Policy Newsletter 2002; 15(1): Article 13. Retrieved 5/19/2012 from http://jdc.jefferson.edu/hpn/vol15/iss1/13.

Health Insurance Security Creates Jobs

People feeling secure that their health insurance will continue (or be easy to get) creates an often overlooked societal benefit, i.e., it promotes job creation – particularly for entrepreneurs. Because this value is hard to quantify, it is seldom seen in policy or political rhetoric. (It is also overshadowed by the general “job lock” phenomenon of employment-based health insurance.)

This week’s National Journal has a great article on this topic (“The Other Jobs Bill”) that examines Massachusetts’ experience with their insurance reforms and coverage requirements: The expert consensus is that these reforms have boosted Massachusetts’ economy and job growth compared to other states. Two quotes from the NJ article highlight the impact:

“Massachusetts, despite the confounding effects of the recession, can now offer aspiring entrepreneurs the freedom to leave large companies and start small ones – and give dissatisfied workers the freedom to change jobs, freelance, or scale back their hours without worrying about depriving their families of health coverage.”

“Despite some initial concern from the business community, companies have largely embraced the law as a benefit, not a burden.”

Implications for the Supreme Court’s Ruling on the ACA

Driving home how interstate commerce is affected by health insurance coverage, the article tells the story of a start-up company’s Founder recognizing the business value of guaranteed access to health insurance through the state’s exchange: It was the factor that “finally snagged her several talented staff members from bigger, established companies out of state.” [emphasis added]

Era of Accountable Care

For many months I’ve been talking about the array of health transformation initiatives the Department of Health and Human Services has been deploying as both demonstrations and programmatic changes.  I’ve been characterizing this strategy to create more accountability as an evolving menu, buffet, or map – sort of like those magical Harry Potter maps where the lines keep appearing on the parchment to create a recognizable image.

As part of releasing the final rules for the Medicare Shared Savings Program, HHS also put forth a document subtitled “Menu of Options for Improving Care,” which is a list of some of the landmarks in the future map of an Era of Accountable Care. This document listed “options for healthcare providers of all sizes, types, all across the country” to work together to coordinate patient care, improve quality and lower costs. Besides the Medicare Shared Savings Program for Accountable Care Organizations (ACOs), these options include:

  • Partnership for Patients ($1B over 3 years)
  • Bundled Payments for Care Improvements (4 models proposed and 4 more planned)
  • Comprehensive Primary Care Initiative (Medicare partnering with Medicaid and private payers in 5-7 local markets to support primary care improvement)
  • FQHC Advanced Primary Care Practice Demonstration (with HRSA)
  • Advanced Payment Accountable Care Organization Model (pre-funding for physician groups wanting to form ACOs for the Shared Savings Program)
  • Pioneer Accountable Care Organization Model (demonstration program for advanced ACOs)
  • Financial Models to Support State Efforts to Integrate Care for Medicare-Medicaid Enrollees

The Menu document clearly indicates a coherent strategy for doing what the Medicare Payment Advisory Commission recently recommended: “Medicare payments should strongly encourage providers to move towards [ACOs, bundled payments, capitated models, shared savings programs] and make FFS less attractive.”

HSS’ Menu document is an initial description of the map HHS is drawing for providers about these more attractive options.  In contrast, in all the debate about health reform and Medicare there has been very little discussion about the future of Fee-for-Service payments or how to make FFS more sustainable -  except for the $300B budgetary hole and pending 30% fee reduction in  Medicare’s physician payment system’s Sustainable Growth Rate formula.  However, making “FFS less attractive” is certainly one of the transformational “sticks” Medicare has been wielding based upon provisions in the Accountable Care Act* and through other Medicare initiatives such as Value Based Purchasing, not paying for Never Events, and using Competitive Bidding for certain products and services.  And the future will see more and expanded use of these types of initiatives to “make FFS less attractive.”

CMS Has Already Been Transformed

Another significant distinction between HHS’ current actions and what they have traditionally done is that HHS is not moving forward alone by modifying Medicare and Medicaid.  Instead they are actively seeking to work in alignment – if not outright partnership – with private payers.  This is clearly stated in the CPCI and the Multi-payer Advanced Primary Care Initiative, which has already started in 8 states.

I have previously written about Accountable Care, (and how it is fundamental for successful health reform), and with the unveiling of the menu from HHS I am encouraged that we are on the way to an Era of Accountable Care – because that is what people really want and society needs, i.e. Accountability for Clinical Outcomes and Accountability for Economic Results.  It is only through those two avenues of accountability that we will achieve my version of the 3-Part Aim:

  1. Saving Lives
  2. Cutting Costs
  3. Creating Jobs

Health Reform is Essential for Creating Jobs

“Creating Jobs” doesn’t usually appear in lists about the goals for health reform, but it is really a fundamental reason for fixing our fractured healthcare system: By reducing the financial bite healthcare is putting on families and companies – as well as creating security for access to health insurance for individuals – health reform will pour capital and confidence into the economy leading to the creation of jobs.  That will be an era of healthcare that we can all count on.

——————————
* The given name for the health reform legislation is the “Patient Protection and Affordable Care Act,” and it is often referred to as the Affordable Care Act or the ACA.  However, I believe the transformational components of the ACA are its features that will create accountability for the clinical and economic outcomes our healthcare system produces, and thus I call it the Accountable Care Act.  In the context where others are referring to this law as Obamacare, or as a government take-over of the US healthcare system, or portrayed voluntary counseling as death panels, then I am very comfortable nick-naming the ACA the Accountable Care Act.

Selling Healthcare Changes – Loss Aversion & Adoption of Innovations

Healthcare issues ranging from national health reform to stem cell research have become a major force in political rhetoric – often overwhelming substantive information. This creates challenges for individuals and organizations seeking to achieve positive changes as their communications are swamped by election-driven messaging.

Creating and implementing successful communications programs in this turbulent environment is easier when the principles of “loss aversion” and the factors affecting the adoption of innovations are used constructively.

Loss Aversion & Campaign Messages: Swinging Votes Not Actions
Campaign communications – particularly negative messages – are very effective because they use loss aversion principles to leverage people’s reluctance to embrace change.

I have repeatedly heard that people need to believe they will receive a gain that is twice as large as their potential loss before seeking to make a change.  However, that 2:1 ratio is derived from some specific social psychology experiments, while loss aversion research demonstrates that the ratio varies depending upon the magnitudes of the risks and rewards for the individual.  For example, many people would willingly wager 10 cents on a coin flip if they could win 11 cents by guessing correctly – if nothing else just for the “fun” of playing, and because losing 10 cents isn’t a big deal. However, very few people would wager $1,000,000 on the same coin flip for the chance to win $1,100,000 – even though the odds and the loss-gain ratio are the same, (and in the player’s favor), because the significance of the risk is much greater.

Kahneman 1991 Loss Aversion Figure

Source: Kahneman et. al. 1991

While these principles are not unique to healthcare, their power for influencing people’s perceptions and actions is greater for healthcare issues because of healthcare’s very personal nature and most people’s impression that they have some healthcare expertise acquired through first-hand experience. [Reader Participation: Insert your story here about a friend or relative who has "educated" or "advised" you with a personal healthcare story, or how someone - perhaps a stranger - has offered healthcare advice based upon something that happened to them, or someone they knew, or they just heard about from someone else.]

The principles of loss aversion make it very, very difficult for potential short-term and individual gains to be the foundation for effective communications campaigns about healthcare improvements for the following reasons:

  1. Loss aversion means that most people are going to want to see a potential gain that is a multiple of the potential loss – and those most affected by a proposed change will see the potential loss as much more significant, and thus require an even larger potential gain in order for them to not oppose it.  (And those most affected will also be the most active and vocal in their opposition.)
  2. For most people, healthcare changes have significant levels of perceived personal risk – whether it’s changing their health insurance benefits, choice of physicians or hospitals, how they can obtain access to new or experimental treatments, or even very specific changes such as stem cell research, abortions, end-of-life counseling, genetic or autism screening, etc.
  3. While potential losses are well understood by most people – since they know what they currently have and realize that change will be “something different” – potential gains are usually much harder to visualize and believe in. (This is why the current Administration has said that under the new health reform law people can keep their current health insurance plans if they like them.)
  4. People’s trust in government and large organizations, (e.g. corporations), has plummeted in recent years, greatly reducing people’s confidence that changes advocated by these sources will actually produce the promised gains. Specifically, in “calculating” potential losses and gains most people will greatly discount potential gains from government or corporate initiatives. For example, suppose a proposed government healthcare change is described as having a gain of 10 and a potential risk of 3. [These numbers are obviously only arbitrary representations of the magnitude of how potential changes might be valued.] This change might be seen as having a gain-risk ratio of 10:3, but a general distrust of government actions could discount the potential gain to 25%, (which is about where Congress’ approval rating is right now), resulting in a perceived gain-risk ratio of only 2.5:3 – and this assumes that people don’t inflate the potential losses because of their low opinion of government, which could make the perceived ratio 2.5:6 or 2.5:9.  Clearly this is not a situation where people would eagerly support a change in something as important as their health.

This means that even for a proposed change where the best projections indicate significant benefits to many, many people, any individual or organization who opposes the change, (for political or other reasons), has a very easy time crafting messages and images that are very effective in undermining support for the proposed change.  (For example, the combination of the following phrases has been effective in undermining support for the new health reform law: “Government Takeover,” “Death Panels,” “Unconstitutional,” and “You Lie.”)

Overcoming Loss Aversion and Negative/Counter Messaging
The solution to overcoming such undermining messages that play on people’s concerns about losing what they have (and know) – as well as their mistrust of governments and other large organizations – is to present proposed changes in ways that expand people’s confidence in and understanding of the potential gains, while also minimizing the perceived loss potential.  One way to do this effectively in a communications strategy is to address the 5 factors influencing the adoption of innovations that Rodgers first described in the 1960s:

  1. Relative Advantage
  2. Compatibility
  3. Simplicity
  4. Observability
  5. Trialability
    [These are derived from Rogers 2003 book and it's earlier editions, and described by Dealy and Thomas in their 2006 book.]

Selling Health Reform as Positive Innovation
Shifting to a “selling” campaign that incorporates these factors – while minimizing the potential affects of loss aversion – moves the communications dynamic away from the slippery losing slope of loss aversion’s context to one that is more favorable to thinking about the longer-term and more tangible benefits of the proposed changes.  For example, the broad communications campaign for the bipartisanlly supported Medicare prescription drug benefit, (Part D -  enacted in late 2003, benefits started in 2006), emphasized  how much individuals would save, rather than the long-term value and security of having  insurance – which is what Part D plans are, they are insurance, not a discounted purchasing scheme. (A USA Today article stated that an average person who enrolled in a Medicare Part D plan would save $1,100 in 2006.)

The Result: While people who did purchase Part D plans were generally happy with their plans, about 10% of Medicare beneficiaries (~4.5 million people) didn’t have prescription drug coverage in 2007 despite some plans costing less than $10 per month. The large number of people who decided to not purchase this very low cost insurance is even more striking because individuals’ premiums increase by a “penalty” of 1% per month for every month between their initial period of eligibility and their enrollment date. (This penalty is to reduce adverse selection, which occurs when people wait until they are ill before getting  insurance.) Unfortunately, the number of Medicare beneficiaries without drug coverage doesn’t appear to be declining – in 2010 it was still about 10% of beneficiaries, and this compares very poorly to the very low percentage of people who declined Medicare Part B coverage.

The significant number of Medicare beneficiaries who decided not to purchase a Part D plan could be due to their aversion to a perceived loss being stronger than the positive messages used to sell the benefits of the plans.  This imbalance results from the gains being presented as short-term financial savings, (rather than the long-term benefits of having insurance), and thus didn’t utilize the factors for improving the adoption of innovations, i.e., Part D insurance plans is comparable to other insurance they have, it is not  complicated (except for the initial large number of choices), they can observe it, the plans can be tried, and the insurance provides a significant relative long-term advantage.

Bottom Line – Sell the Value & Spirit, Not the Calculation
The bottom line is that selling the value of healthcare changes – whether it’s national reform or narrow innovations – needs to encompass broader, longer-term, and tangible values, rather than short-term calculations that may be both uncertain and not believed, while also deflecting and undermining opposing arguments, i.e. capitalize on the factors that ease the adoption of innovations while minimizing people’s inherent aversion to potential losses.

And in closing, (at least for this posting), how these principles were used in a negative way to sell a non-healthcare change might be a useful illustration:

Buying a house with an unaffordable mortgage was seen as OK before 2008 because the potential for loss was believed to be very small – since prices were rising and foreclosures were rare so there was very little to trigger an aversion. And owning a home is compatible with most people’s desires and daily lives, home ownership is observable, renting is akin to a trial of ownership, brokers and agents made it all very simple, and home ownership has potentially great financial and social advantages. However, in retrospect it’s clear that purchasing a home was vastly wrong for many people – and potentially involved outright fraudulent communications – because they had been led to believe in illusory loss-gain (a.k.a. risk-benefit) calculations.

Fixing or Fracturing Medicare?

Reducing Medicare spending has been one of the focal points in the debt ceiling negotiations, and it was reported that the President is considering throwing the idea of raising the eligibility age for Medicare into the pot as part of a stone soup recipe that might get enough Congressional Ds and Rs to swallow the end product.

Increasing Medicare’s Eligibility Age is Bad Policy and Worse Politics
While increasing Medicare’s eligibility age to reduce spending makes simple arithmetic sense using the formula Spending = Number of People x Spending per Person, like almost everything in healthcare, what is simple is often 30 degrees wrong. And raising Medicare’s eligibility age is no exception because it has significant fiscal and political problems.

First, that simple arithmetic formula ($=#($/#)) doesn’t account for the reality that older Medicare enrollees are more expensive than younger ones, so the savings from eliminating people who are at 65 and a few years older only saves a fraction of the average per person Medicare spending.

Second, raising the age of eligibility won’t eliminate all those people under the new enrollment age since some of them will still qualify because they are disabled or have end-stage renal disease – and these enrollees are more expensive than average too.

Third, eliminating the youngest (and least expensive) enrollees from Medicare will cause the Part B premium to increase because by law it has to account for a fixed percentage of all Medicare Part B spending.

Fourth, those individuals age 65+ who would be ineligible for Medicare would have to buy private insurance – or continue to be covered by their employers’ retiree health plans or state Medicaid programs. And just as they are generally less expensive than older Medicare beneficiaries, they are also more costly to insure than the average person under the age of 65.  Which means that they (or their former employers or Medicaid – which the Federal government also partially pays for) would be paying more per/person for their insurance. AND, including these individuals in the now forming insurance exchanges would raise premiums for everyone else in the exchanges. (In a report released in March, the Kaiser Family Foundation found that raising Medicare’s eligibility to 67 in 2014 would “result in an estimated net increase of $5.6 billion in out-of-pocket costs for 65- and 66-year-olds, and $4.5 billion in employer retiree health-care costs,” as well as $0.7 billion more spending by states for their Medicaid plans in 2014.)

So the final score is bad fiscal outcomes, (Medicare is saving less money than might be quickly conceived), along with a bunch of bad political outcomes: People aged 65+ without Medicare would pay the highest private sector premiums – either directly or via their former employers or Medicaid – and middle income people on Medicare would see a Part B premium increase. Of course those effects could be mitigated by subsidizing the Part B premiums and the private sector insurance (and Medicaid) costs to lessen these impacts – and the political fallout. But then what happens to those Medicare “savings?”  If that’s the “deal” that is struck, it would be a direct hit to begin fracturing the fundamental social contract that has defined Medicare since it’s founding – and subsequent whacks would likely be to incrementally increase enrollment age and otherwise cut eligibility criteria.

A Better Idea
A better solution is to actually improve Medicare – and (spoiler alert) much of what is needed to do that was contained in the ACA and the fiscal stabilization legislation.  Specifically, changing incentives for providers from volume to quality and creating support for the adoption of healthcare IT systems.  Neither of these will occur rapidly, but just as real medicine doesn’t cure people like Dr. McCoy did on Star Trek or Dr. House does on TV today, really changing a system as complex as the one that delivers the services that Medicare pays for won’t occur quickly.  The first stones on that path have been laid (e.g. ACO concepts, advanced primary care that coordinates care, similar pilots/demos, and penalties for delivering low value care, a.k.a.”value based purchasing”), and veering off that path  because it’s “hard” or not as speedy a trip as some would want, is like jumping into a turbulent river to get downstream faster without any idea where the rapids or waterfalls might be, or what carnivores (or nasty microbes) are waiting for a tasty snack.

Health Law Is Reforming System Via Market Forces

All the controversial rhetoric about the new health reform law is missing a huge reality:  The law is driving dramatic changes in the real world.  Almost every major health delivery system is preparing to reorganize how they provide care to hundreds of millions of Americans by becoming Accountable Care Organizations (ACOs).

Health Systems are Voting With Their Wallets
The magnitude and level of financial interest in ACOs – and proof that it is not just cautious planning – were dramatically illuminated by recent actions and a Washington Post article:

  • On Thursday, HHS released the long anticipated proposed rule for ACOs and Medicare “Shared Savings.” For the rest of the day the Federal Register’s website was nearly shut down by people trying to download the 429 page document.
  • Today’s Washington Post article, “Complicated health-care law leads to payday for consultants,” includes figures about the tens of thousands of dollars consultants are charging for strategy sessions about how to think about ACOs, and the millions of dollars in fees they are getting for actually helping health systems to become ACOs. Health systems were signing consultants up for these engagements before the draft regulations were released because of their expectations of how dramatically competition among ACOs will change their financial incentives and structures. And some of the phrases in the article highlight the level of importance being placed on ACOs: “ACO frenzy,” “Oversubscribed,” “Glittering high fees” and, “I have never seen anything quite like this in my 35 years in this business.”

Bottom Line
I could write more about the proposed ACO rule, my interactions with health systems looking to become ACOs (and the organizations helping them), and how ACOs will very likely produce significantly more savings for Medicare than the Congressional Budget Office has projected, but the bottom line looks like this:

  • ACOs are happening.
  • The Medicare ACO/Shared Savings rule will shape their form, but not their creation.
  • ACOs – and their quality/efficiency incentives payments – will fundamentally transform health care in the US.
  • This transformation will be like an avalanche as health systems compete locally to demonstrate how much more Accountable they are to patients and payers, i.e. how they provide higher quality at lower costs than their competitors down the street or across the river.
  • While the official title of the new health law is the “Affordable Care Act,” it very easily – and perhaps more accurately – should have been called the “Accountable Care Act” because it is that part of the law which will actually lead to more affordable care for more people.

As always, stay tuned and keep your seat belts tightly fastened for the upcoming wild ride. Like a roller-coaster, the fun is just beginning.

Roller Coaster