Just a quick FYI - Today’s Boston Globe reports that the Federal Government has approved a new 3 year Medicaid demonstration waiver for Massachusetts - with $10.6 billion to enable the continuation and growth of the state’s health insurance coverage expansion program.  The original 3 year waiver expired at the end of June, and the state and Federal officials had been discussing a new 3 year waiver for many months before that deadline.  Since the end of June, the state’s program has been running on a series of several week extensions to the old waiver granted by the Federal Government.

After writing last week about Pitney Bowes’ experience in creating positive financial returns by providing quality health benefits for their employees, I attended a panel of alumni and faculty from the Yale School of Management that discussed the topic “Do Consumers Make Rational Healthcare Decisions?” (I’m told a video podcast will be available soon.)  While their consensus on this question was no, their discussion and Q&A included employer provided health benefits.

Professor Fiona Scott Morton noted that the value employers get from providing health benefits depends upon their industry - specifically whether the company retains employees or has a high turn-over rate.  This makes sense, since it would take time for employers to have a positive return on investing in employees’ health.  Professor Scott Morton also pointed me to a very interesting research article by professors at Duke and NYU that looked at this issue by analyzing data bases that included individuals occupations.*  By comparing workers in high and low turn-over industries they found several interesting things, including:

• Employers in low turn-over industries provide better health benefits
• Employees in low turn-over industries use more health care services while working
• Employees in high turn-over industries use more health care services when retired

This paper had many other interesting conclusions, and I’ll confess to not being able to fully assess all its conclusions because of some of the mathematical modeling used and the manner in which they presented their quantitative findings.  However, from what they said, I do wonder if much of the effect they observed could be due to higher wages in the lower turn-over industries.  This makes simple economic sense to me, because the researchers used average vocational preparation for the employees in the industry as a proxy for turnover (see footnote), and companies that depend on higher skilled workers would likely pay them more - which would also lead these companies to retaining their employees.   In addition, companies with lower skilled workers might also be less likely to provide paid sick leave as an additional form of compensation - which could account for the lower rate of doctor visits and preventive care the researchers found for the employees in the high turn-over industries.

What this means for health reform - and the future of employer-based insurance in the US - is that for some employers and employees the current situation works well, and seems to benefit society overall since retirees from higher skilled/low-turnover companies are less of a financial burden on Medicare.  However, for employees and employers in industries with high turn-over rates, the  employer-based insurance situation in its current form may not be working so well - although I’m still concerned about how much of the researchers conclusions are related to income -  either directly or as a proxy for less generous health benefits.  In any case, the findings from their paper point out some of the areas where our health system is working and others where it needs some fixing.  Hopefully reform initiatives in the coming months and years will address those realities.

* The researchers used the average Specific Vocational Preparation (SVP) - a Department of Labor categorization system used in the databases -  for each industry as a proxy for employee turn-over since other researchers have found an inverse relationship between average SVP and employee turn-over.

I recently heard Michael Critelli, Executive Chairman of Pitney Bowes Inc., talk about what the company has learned about the value of providing quality health benefits and services to their employees.

Because they have a workforce that is divided between their offices and customers facilities, Pitney Bowes has been able to conduct a natural experiment and see how providing access to different health and wellness services can effect their employees and the company’s costs.  What they found was that providing a good quality health benefits package in conjunction with healthy food and exercise options, etc., has reduced health care costs for their employees that work in their own offices compared to employees who work off-site.

I haven’t been able to connect with Mr. Critelli to get more data, but he did state that the saving have been around $2.3:1.  Pitney Bowes careers web-site states, “We recognize that our people are key to our success. Simply speaking, our business growth depends on the talent of our people.”  This sounds like the rhetoric that many companies use, but apparently at some level they actually put their money behind this statement.

Implications for Health Reform
At a time when some are proposing to shift the tax incentives for the purchase of health insurance from the employer to the employee - which would dramatically reduce the percentage of health insurance provided by employers - the experiences of companies like Pitney Bowes should be very informative.  Having grown up in the Insurance Capital of the World, I saw how companies that understand the value of employees health and satisfaction make extensive efforts to promote both.  Only time will tell what direction health reform will take in the US, and whether immediate cost reduction or longer-term health and productivity of the workforce will be the higher priority.

A recent Boston Globe article about a possible legal challenge to Masschusetts’ health reform initiative indirectly raised one of the most stubborn challenges in health reform:  The Federal ERISA law.  (See below for more about ERISA.)

The contentious issue in Massachusetts is a proposal to require employers to both pay at least 33% of full time employees’ health insurance premiums and ensure that at least 25% of their employees are covered by their health plan. (The current requirement is that they do one or the other.) So why should this difference be the basis for a law suit?  Actually, there isn’t really any legal difference.  In either case, an employer that provides health benefits to their employees by self-insuring, (rather than directly buying coverage from a health insurance company), could sue based upon the Federal ERISA law that regulates employee benefits.

The real difference between the proposal and the current law is political and philosophical rather than legal – employers are willing to live with the current either/or requirement, but don’t want to be pushed down a slippery slope where the coverage requirements and/or the small penalty of $295/employee for failing to meet the requirements are increased.  And their legal backup is ERISA.

So What is ERISA?  (Without going into too much detail.)
ERISA stands for the Employment Retirement Income Security Act of 1974, and it is a Federal law that governs how companies provide benefits to their employees.  The law is overseen by the Department of Labor, and was originally designed to ensure that pension benefits were properly managed and funded.  However, it also encompasses health benefits – but only for companies that provide the benefits themselves by self-insuring rather than purchasing health insurance for their employees from insurance companies.  The result is that ERISA mostly applies to larger companies which typically self-insure for several reasons:

• They don’t have to comply with state health insurance mandates – which is one reason why large companies can reduce their health benefit costs by self-insuring
• Since many large companies have employees in more than one state, by self-insuring, they can operate a single health benefits plan – under what is called an ERISA exemption – rather offer different health insurance options in each state based upon the states’ insurance laws
• By accepting the financial risk of self-insuring, they can also receive any financial rewards from controlling health care spending.  This also gives them incentives to keep their employees healthy as well as productive

ERISA is a Linchpin for Federal or State Health Reform
ERISA is a crucial part of health reform that is not very well appreciated and generally not discussed outside of very wonkish circles – which is probably why the Boston Globe article doesn’t even mention it.

At the State level – as in Massachusetts – ERISA theoretically precludes state governments from placing requirements on self-insured company’s health benefits programs.  However, ERISA does regulate how the benefits are provided, has requirements about providing information to employees about their benefits – aspects that are consistent with the law’s original focus on pension benefits – and has four coverage mandates:

• Non-discrimination against pregnancy as a medical condition
• Hospital length of stays for women following delivery: 48-hours or 96-hours following a Cesarean
• Parity between mental health and other benefits
• Reconstruction following mastectomy

ERISA has also been changed to require that companies continue to offer health coverage for a limited amount of time to employees after they leave the company (COBRA in 1986), and to limit or ban the exclusion of pre-existing conditions or other factors that might predict their need for future health care needs (HIPAA in 1997).

ERISA coverage requirements has rarely been modified because of the lack of any clear consensus for what changes should be made, and the concern that adding coverage mandates to ERISA would increase costs without expanding the number of people with insurance or improving quality. In essence ERISA is a major obstacle for health reform because it regulates one of the largest and most stable parts of the employer-based health insurance system. For example, the Kaiser Family Foundation’s annual survey of employers has shown that 98-99% of companies with more than 200 employees have offered health insurance to their employees every year since 1999.  Similarly, the percentages of employees who are eligible and who chose insurance coverage have remained relatively stable from 1999-2007:

Large Companies (>199 employees) Offering Health Benefits:
Eligibility, Take-Up and Coverage Rates

[It should also be recognized that health insurance costs are a significant factor for large companies to outsource jobs to small companies or independent contractors here in the US, or to send those jobs overseas to companies that have cheaper labor costs.]

The ERISA Chasm
ERISA is a huge uncrossed chasm for health reform because virtually any state law that places requirements on the health benefits provided by self-insured companies could be subject to a Federal lawsuit.  And at the Federal level – as noted above – nobody has come to a consensus as to what should be done, except for some chipping at the edges with worthwhile requirements.  In addition, the Committees with jurisdiction for ERISA generally have not made ERISA health benefit issues a high priority: In the Senate, jurisdiction for ERISA is shared between the Finance and the Health, Education, Labor and Pension Committees.  Each of these committees has significant other responsibilities, including Medicare, Medicaid, biomedical research and the FDA.  And in the House of Representatives, the Education and Labor in the House of Representatives has jurisdiction for ERISA, which is really their only health related area of authority.

ERISA’s Implications for Obama and McCain Health Reform Proposals
The importance of ERISA and its Federal oversight over all self-insured employer provided health benefits raises the question of how the plans of Senators Obama and McCain would be effected by ERISA?

Senator Obama’s plans clearly call for more Federal regulation of health insurance which could significantly change how health benefits are provided to employers.  This avenue for  creating a more stable system for health insurance/benefits changes would have to involve ERISA. However, his proposals explicitly state that individuals could keep the coverage they now have – which would likely mean limited changes to ERISA, and those changes might not raise too many objections from the large business community.

Senator McCain’s plans are based upon shifting the purchase of health benefits from the company to the employee by moving the tax deductibility from the company to the individual.  (It appears that there would also be a dollar limit on this deduction, and in essence also shifting from the general current situation of health benefits being a “defined benefit” to being a “defined contribution” – something that happened with many pension plans in the last ten years as a means for companies to control or limit their future financial liabilities.)  If a McCain plan required everyone buy their own insurance from insurance companies, then changes to ERISA wouldn’t be required, but it might lead to much more state legislative and regulatory action as millions more people become subject to state laws for both insurance company marketing and plan design.  In addition, one selling point used for McCain’s campaign positions, is that it would enable employees to take their health insurance with them as they went from job to job.  For that to be true across state lines, then tremendous changes to ERISA would be necessary – and probably much more than under the proposals that might come from an Obama Administration.

Conclusions
Sorry about the very long post, but as the title states, ERISA is truly an unbridged chasm.  Many health reform proposals have raced up to its brink only to suddenly stop short at the edge of the ERISA cliff – sort of like the comedy Westerns of the 1950s where the rider gets pitched over the head of the horse into the canyon.  In this analogy, perhaps the public and the politician are the horse, (I’ll let you decide which half is which), and the proposal is the rider – which gets lost in the depths of the canyon because the horse can’t find a way across.

For significant health reform to be achieved, all constituencies and stakeholder groups need to reach some consensus to build a bridge across the ERISA chasm.  Otherwise, no action will likely continue to be everyone’s second and fall-back option.

One of the challenges for improving the healthcare system is creating a vision for what is achievable in a timeframe of months or years.  The first step for creating such a realistic vision is to understand how progress has been made in the past.

A microcosm of such progress was described in a recent article in The Economist.  This article describes advances in our understanding of stomach ailments – one of my favorite areas of biomedical progress because in the last several decades dramatic changes have occurred in our basic knowledge about this area, and so many people can relate to stomach problems.

The most significant change occurred in 1982 when two Australian scientists disproved the dogma that because of its very acidic pH the stomach was sterile.  They showed that the H. pylori bacteria could live in the stomach and cause the stomach inflammation associated with an upset stomach.  Subsequent research showed that H. pylori could be the cause of ulcers and stomach cancer. Following those discoveries, medicines were developed to change the pH of the stomach to treat the stomach inflammation and eliminate the H. pylori.

While lowering the acidity of the stomach with medicines would often improve symptoms, it also raised the question about what bacteria might be able to live in the stomach under less acidic conditions?  This question is more intriguing because it has been observed that when people taking medicines to lower their stomach’s acidity stopped taking these medicines, they have a resurgence in their symptoms.  This could be because their stomach had become accustomed to the less acidic conditions and then reacts to the renewed acidity; Or it could be because the bacteria that were living in the less acidic stomach are not happy with the greater acidity; Or perhaps the H. pylori that had been struggling in the less acidic stomach multiply very happily with the return of the acidic conditions.

H. pylori – Obesity and Asthma
The Economist article discusses some even more interesting ideas about the role of H. pylori in the stomach.  For example, they cite researchers who speculate that the elimination of H. pylori from the stomach may be linked to rising rates of obesity and cancer in the esophagus. These researchers at NYU School of Medicine also found that children who had not been infected with H. pylori were more likely to have asthma.  The article summarizes these observations with the speculation from NYU’s Dr. Blaser that perhaps H. pylori should be viewed not as a pathogen, but rather as a symbiotic organism “that is sometimes helpful and sometimes harmful.”

One of Dr. Blaser’s key observation is that H. pylori appears to not just be a passive resident of the stomach, but may actually regulate the stomach’s acid levels to keep the stomach’s pH in a range the bacteria prefer.  However, the substance that H. pylori secretes to get the stomach to produce less acid may be toxic to the stomach and result in ulcers and local cancers.  Thus, while eliminating the H. pylori would eliminate the toxic source of ulcers and cancers, it can also allow the stomach to produce too much acid – which can lead to cancer of the esophagus, as well as “acid reflux disease,” a.k.a. “heartburn.”

The H. pylori-obesity link is based upon the possibility that the bacteria modify the secretion of certain hormones effecting how people feel hungry, and the H. pylori-asthma link is based upon the effects the bacteria may have on children’s developing immune system.  (See The Economist article for more information about these areas.)

Conclusions
These findings lead to the conclusions that perhaps treating stomach ailments and preparing peoples’ stomachs for healthy lives should be based upon their genetic makeup, and seeding children with strains of H. pylori that don’t produce the toxins that can lead to ulcers and stomach cancer, could benefit them without doing harm in the long run.

Overall, this is a great example of how once more knowledge is obtained about a disease and the relevant human physiology, scalpel-like treatment and prevention strategies can be developed and implemented.  Of course, educating clinicians, patients, payers and others about these advancements – and why they are important – are also important challenges, because improving health care treatments and our healthcare system involves not just determining what should be done, but also how to actually accomplish those things.

An article in the July/August Health Affairs about Massachusetts health plans implementing Pay-for-Performance (P4P) incentives for physicians raised more questions than it answered.

The study found that P4P programs from 5 private sector payers “wasn’t associated with greater improvement in quality” compared to the overall upward trend in the factors measured.  But the study didn’t address some overarching questions and basic realities about P4P, such as:

• How the payers P4P incentives to the physician groups was actually translated into incentives for the individual physicians - or smaller groups of physicians inside the larger groups?
• How the P4P incentives compared to the other financial incentives the physicians are facing?  For example, seeing more patients or doing more procedures could increase their income more than meeting the P4P standards. (The Health Affairs article states that P4P incentives for Massachusetts physician groups averaged 2.2% of their income.)
• The quality measures used in the study were all performance based, rather than actual outcomes, e.g. cholesterol screening rates rather than patients’ actual cholesterol levels, HbA1C screening rates in diabetics rather than their actual HbA1C levels, or asthma medication use for children ages 5-17, rather than ER visits or hospitalizations for these same children.  What impact does that has on physicians’ behavior, and the value of changing their actions to meet these process standards?  Would physicians be more responsive to incentives tied to clinical outcomes?

Making Incentive Programs Successful:
While the study concluded that the P4P incentives program instituted in 2002 may not have produced dramatic changes in the HEDIS process measures, that does not mean  they were ineffective or that P4P is not a useful tool.

First, while collecting process measures data is easier, since clinical outcomes are what patients (and their physicians) should really care about, shouldn’t P4P incentives be based upon actual clinical outcomes? Process measures are easier to monitor by using billing data, but as the prevalence of quality electronic medical records systems grows, collecting and analyzing data about clinical outcomes will become much easier.  In addition, measuring a small set of any factors – process or outcome – presents the pitfall of driving physicians to focus on those diseases and measures to the exclusion of other important things.  For example, in the Health Affairs study, there are a number of preventive services in the process measures, but what about flu vaccinations, colonoscopies or smoking cessation?  This “managing what is being measured” behavior is why the number of factors used for P4P incentives should be as broad as possible.  (But this does not mean that they all have to be measured at every interval, or for every compensation period.)

Second, as any psychologist (or parent) will attest, the time between the actions and the reward (or penalty) is very important for changing behaviors. The Health Affairs article indicates that the bonuses are paid to the physicians groups annually.  Having the incentives paid annually, (or even quarterly), would be unlikely to provide adequate feedback to physicians to prompt them to change their behaviors.  An alternative blended methodology would be to provide physicians feedback on their actual performance against many of the possible measures on a weekly or bi-weekly basis, while making the P4P payments on a monthly or quarterly basis.

Third, many large companies structure their bonuses for their senior managers around a minimum of 20% of compensation.  If incentives for P4P programs only represent a small percentage of physicians’ income, then it would be unlikely to change their behaviors – particularly if they can make up for any lost income by increasing volume.  However, if physicians are being paid a fixed (capitated) amount per month to provide a certain set of services to a patient group – either primary or specialty care – then the volume part of the equation disappears, and P4P programs could be much more effective, even at a lower fraction of their potential income.

And lastly, and most simply, the insurers would not be spending time and money developing and implementing these programs if they didn’t think they provided some benefit – even if it is only financial - so they must be getting some benefits, or at least learning some things to make these programs beneficial in the future.

Conclusions:
18 years ago I wrote a book chapter that focused on structuring incentives for physicians.  Since then it has been hard to move payers and clinicians toward using more focused financial incentive systems.  But the P4P concepts are important, and to be successful they need to be implemented in a way that works for payers, physicians, and patients.  Unless these and other stakeholder groups buy-in to the purpose and practice of such incentives systems, they are unlikely to have the desired effects.  And the result will be more of the same – rising costs, variable quality, and limited access for many patients.

In talking to people about the problems with the US healthcare system, two fundamental truths have become apparent.

First, people really want the type of healthcare that is envisioned in science fiction such as Star Trek, where almost any ailment is treated with a single injection or pill, or a few waves of a healing wand. Unfortunately, medical science hasn’t accomplished that, except in a few instances – antibiotics for a bacterial infection, or perhaps relocating a dislocated finger or shoulder (and those still require weeks to heal and therapy to regain strength and mobility).

And second, the ongoing problem of healthcare literacy and communications may be getting worse as the complexity of medical treatments increases.  Literacy and communications problems impair good healthcare when patients don’t understand what their doctors are telling them, how to take their medicines, or what disease they have.  When this happens  patients have much greater difficulty properly taking care of themselves.  A few examples and data:

• The American Academy of Family Physicians has a Literacy Toolkit which they promote with the twin facts that only 50% of “patients take medications as directed,” and “nearly 90 million American adults have difficulty understanding and using health information.”
• A July 9^th ABC news story reported about an Annals of Emergency Medicine article showing that 78% of Emergency Room patients had some misunderstanding of their doctor’s instructions, but only 20% realized that they didn’t fully understand the instructions.
• More patients are misusing medicines in dangerous ways. The actor Heath Ledger’s accidental overdose was the most recent high profile example of this. And CNN reported Monday about an Archives of Internal Medicine study showing that deaths of this type have increased 700% in 20 years.

Star Trek directly addressed communications challenges in a Next Generation episode, (Darmok and Jilad at Tanagra), where the crew of the Enterprise encounters an alien race whose words are understandable, but none of it makes any sense. It turns out that the alien’s language is based upon metaphors, and since the Enterprise’s crew doesn’t understand the context for the metaphors – the mythology and stories behind the metaphors – communications is nearly impossible….. until of course Captain Picard figures it all out in 60 TV minutes.

Unfortunately clinicians and patients aren’t able to resolve communications challenges like TV characters. When clinicians use words and concepts that their patients don’t understand, patients can’t correctly follow their instructions, and end up relying on what they think they heard or understand.

A classic example of this is that many people think taking antibiotics makes them resistant to antibiotics.  While it is true that antibiotic resistance is an issue of concern, it is the bacteria that become resistant to the medicines – not the patients. But patients who believe that they will become resistant may not take the full dosages of their antibiotics, or for as long as the doctor has prescribed – inactions that can actually increase the rate of bacterial resistance and not adequately treat the patient’s infection – bad outcomes for both society and the individual.

This is just one example of how misunderstanding a disease or a treatment can produce adverse consequences. Similar misunderstandings about diseases like diabetes and high blood pressure also lead to inadequate treatments and poor outcomes. For example, many patients believe they can tell when their blood pressure is high – and only then do they take their medicine. But high blood pressure (or hypertension) is called the “silent killer” because people can’t feel high blood pressure – except sometimes when it is dangerously high.

Which brings us back to Star Trek. One of the great things about the one-dose cure is that the patient doesn’t have to understand their disease or remember to take their medicines for the treatment to be effective, so literacy and communications problems are less of an issue for quality of care.

Lessons for Healthcare Reform
The lessons here for health reform are twofold: First, producing one-shot cures will require a lot more research and development – which needs to occur at the same time as we are improving the healthcare delivery system. And second, a fundamental area for improving healthcare delivery is communications and literacy. If patients don’t understand their disease, how to take their medicines, or modify their lifestyle, etc., then that is not their fault – that is the fault of the healthcare delivery system, and we should be able to find ways to fix it because this is not a new problem.

A couple of months ago I wrote about how one percent of adults in the US get free government health care.  While the statistics in the February Pew study were very interesting (and somewhat shocking), I saw a report in a local Connecticut newspaper (The Day, June 26th) that put a face on these statistics.

The Day’s story was about Jihad Abdulshaheed, a 36-year-old man who had been incarcerated since November 2007.  The judge was prepared to sentence to a one year sentence, and since he had already served at least 50% of his time, under the Department of Corrections guidelines for nonviolent prisoners he could have been released the next day.

However, this is where the story gets very interesting.  The man asked the Judge to hold off his sentencing “because he is waiting for the Department of Correction to schedule his surgery for a groin hernia.”  The newspaper also noted that the DOC’s health care budget for its 23,000 prisoners was $99.3 million.  This works out to a little more than $4,300 per prison.  It seems that finding a way to release this man, and still pay for his hernia surgery would make more sense than keeping him locked up until the DOC can pay for the surgery……. I also wonder about his follow-up care? Where will he get it - in prison or outside?  And how will that be paid for?

This man’s situation and the Pew study illustrates how communicating the essence of a healthcare story can involve statistics, analyses, and anecdotes.  The first two provides a framework if the issue, and the anecdote puts a face on that skeleton.  Each one can be powerful, but together they create a remarkable picture that can change policies, attitudes and actions.

The focus on Medicare payments to physicians for the last six months has been on the 0.5% increase Congress enacted for the first 6 months of 2008 to replace the 10.1% reduction that would have occurred under Medicare’s Sustainable Growth Rate (SGR) formula. Legislation to continue this rate for the rest of the year failed a required procedural vote in the Senate last week.* This leaves Medicare physician payments after June 30th uncertain – although it is expected that Congress will do something in the next week, or three.

However, beyond the impending Medicare 10.6% reimbursement reduction for all physicians, the Graham Center of American Academy of Family Physicians published a short report on June 13th that expands the analysis to include pending change in how Medicare reimburses physicians in Physician Scarcity Areas (PSAs), and Health Professional Shortage Areas (HPSAs). As the report’s summary table below shows, the PSA 5% reduction would effect about 25,000 primary care physicians and over 7.5 million Medicare beneficiaries. And these payment reductions would be on top of the impending 10.6% Medicare payment reduction.

With the general consensus being that we have a shortage of primary care clinicians, cutting Medicare payments to physicians in underserved areas seems truly unwise. And doing it at the same time that Medicare’s overall reimbursement formula for physicians is being so contentiously debated is really a bad idea.

If the PSA and HSPA programs would benefit by being adjusted to redefine their geographic or other targeted goals, then that should be done as part of comprehensive strategies and plans for improving Medicare’s payment system to ensure Medicare beneficiaries have continued access to physicians – particularly those providing primary care services. Making reductions to the PSA and HSPA programs right now seems like the right and left hands of government don’t know what they are doing.

* This legislation would have also implemented a 1.1% increase for 2009 instead of the SGR formula’s reduction of 5%

The Medicare Payment Advisory Commission released its annual report to Congress on Friday. In chapter 2 of its report, MedPAC makes two significant proposals for improving the financial incentives for primary care providers.

Great Incentives for Primary Care Practitioners Not Just Primary Care Services
First, it recommends changing Medicare’s reimbursement system for “evaluation and management” (E&M) services. While last year Medicare increased payments for E&M services, they couldn’t differentiate between types of physicians providing these E&M services, i.e. the Medicare system doesn’t distinguish between a family physician and a cardiologist if they are providing the same type and level of intensity of service.

Therefore, MedPAC recommends that a subset of primary care related E&M services, (e.g. office visits, home visits, long-term care patient visits), provided by clinicians who meet a minimum percentage threshold of a clinician’s total Medicare billing, (and thus would be identified as being “primary-care-focused practitioners”), should receive higher Medicare payments. (MedPAC choose to identify primary care clinicians based upon a percentage of primary care services - rather than specialty designation - because it would be administratively simpler and ensure that the incentives would be directed towards clinicians actually providing primary care services.)

The specific recommendation from the MedPAC report is:

The Congress should establish a budget-neutral payment adjustment for primary care services billed under the physician fee schedule and furnished by primary-care-focused practitioners. Primary-care-focused practitioners are those whose specialty designation is defined as primary care and/or those whose pattern of claims meets a minimum threshold of furnishing primary care services. The Secretary would use rulemaking to establish criteria for determining a primary-care-focused practitioner.

This is a sea-changing proposal in that it seeks to differentiate how Medicare Part B reimburses primary care providers versus subspecialists – and thus makes Medicare Part B payments more granular than was done when the RBRVS system was first installed in the early 1990s. (Back then, the fight was between so-called cognitive and procedural services.) This refinement will enable Medicare in the future to use its payment system as a more managerial tool for shaping the healthcare delivery system to increase the supply and access of primary care practitioners. The need for such changes is evident by the shrinking number of medical school graduates going into primary care:

However, because the proposal is intended to be budget-neutral it explicitly pits the financial interests of primary care practitioners against subspecialists, which means that the subspecialists will not eagerly welcome these changes to Medicare since they would be getting a smaller piece of a same-sized pie. (Note – MedPAC’s analysis shows that using the a cut-off of 65% of primary care services for clinicians to receive a 10% increase in payments for these services, would increase reimbursements for these services by a total of 6.2%, and would require a reduction for all other services of 0.9% to achieve budget neutrality.)

Build a Medical Home
MedPAC’s second proposal to promote more primary care is to increase the number of Medicare beneficiaries with medical homes.

Medical homes are the latest name for initiatives to give patients a single clinical practice or practitioner to ensure that their care is coordinated with the goal of improving the quality of care, and controlling costs by avoiding unnecessary complications and unnecessary testing. Medical homes are particularly important for people with chronic conditions for ensuring appropriate compliance with recommended treatments, disease monitoring and preventive testing. As the MedPAC report states, “Unlike the current fee-for-service (FFS) payment system, which emphasizes treatment for acute conditions and face-to-face care, medical home programs encourage practitioners to coordinate their patients’ care between visits and among providers. In improving care continuity and coordination, medical homes can enhance the role of primary care practice … [and] … increase our health system’s quality and efficiency.”

Medical homes are not new concept, as care coordination has been discussed since the original concept for HMOs several decades ago. Recently they have been promoted by primary care associations, and Medicare will start a medical home demonstration project in January 2009. MedPAC’s proposal builds off of the planned pilot, and would provide additional monthly payments to medical home practices providing the care coordination services. (Signing up with a medical home would be voluntary for Medicare beneficiaries and they would not have to pay any additional co-payments or premiums.)

MedPAC’s specific medical home proposal, which goes beyond the planned pilot project, is:

The Congress should initiate a medical home pilot project in Medicare. Eligible medical homes must meet stringent criteria, including at least the following capabilities:

• furnish primary care (including coordinating appropriate preventive, maintenance, and acute health services) [and medication management]
• conduct care management
• use health information technology for active clinical decision support
• have a formal quality improvement program
• maintain 24-hour patient communication and rapid access
• keep up-to-date records of beneficiaries’ advance directives, and
• ‘maintain a written understanding with each beneficiary designating the provider as a medical home.

Medicare should provide medical homes with timely data on patient utilization. The pilot should require a physician pay-for-performance program. The pilot must have clear and explicit thresholds for determining whether it can be expanded into the full Medicare program or should be discontinued.

MedPAC recommends an enhanced pilot project - rather than a national initiative -because there are administrative and technical factors that still need to be worked out, including, how to structure monthly payments to medical homes, and how to provide medical homes information about services provided to their patients by other providers so they can do care coordinating. The good news proposals for specialist physicians in MedPAC’s is that the pilot is not being proposed as budget neutral, but would cost between $250-750 million over 5 years.

Conclusions
Most experts think these proposals will be effective in improving the healthcare delivery system in the US, and I agree – provided that they are structured and implemented so they actually change the actions of physicians and patients. To be successful they need to change physicians’ practice patterns to focus more on primary care and care coordination, and to change patients’ behaviors so they use their primary care clinicians for more of this care management. In addition, as is reflected in the charts above, these proposals face the logistical challenge of finding enough primary care clinicians to provide these services. These changes will take time - it takes years to alter patient-physician relationships, shift how physicians practice or increase the supply of primary care clinicians – but this is not a reason for further procrastination.

p.s. I’m writing this from the road, so my editing and grammar may be somewhat deficient – my apologies.