Posts tagged ‘#healthcare #healthcare reform’

King vs. Burwell decided; starter gun goes off for insurer consolidation

In a long awaited decision, the Supreme Court of the United States handed down a 6-3 decision in favor of the administration in King vs. Burwell, a challenge to the legality of subsidies for the poor in the federal health care exchange. I am not a legal scholar, so can’t comment on the legal nuances of the case. Nonetheless, there are big implications to the law standing that even I can understand.
What this effectively means is that one of the biggest remaining legal challenges to the Affordable Care Act has failed. Future efforts will be harder, including the continued drive of Congressional Republicans to repeal and replace the ACA altogether. Most observers believe that reversal of the ACA became substantially less likely with this decision.
Some of those observers are major health plans, who shortly after the decision was handed down, announced mergers with, or acquisitions of, their peers. Aetna has announced a $37 billion purchase of Humana, and Anthem has offered (and had rejected) a $47 billion price for Cigna. The reason for the timing is that these insurers wanted to make certain that their government lines of business were stable prior to purchasing the membership of their cohorts, i.e., there would be no rollback of the millions that got new coverage as the result of the ACA.
In my last post, I discussed the incentives for providers to consolidate with one another, and with payers. The reasons for this aren’t solely or even predominantly due to the ACA, although some say that the ACA accelerated that trend. The main reason, in my opinion, is the same one I cited in the post about provider consolidation: big gets you economies of scale. That is, to build a claims processing system, or a care coordination program, or an advertising campaign for the first customer is enormously expensive. But adding the ten millionth customer? Effectively the cost is zero. Computerization has made that number even closer to zero, as you don’t necessarily even have to hire any more people to process that ten millionth customer’s enrollment or claims, just add a little more cheap computing power. Posts I have been reading since these mergers announcements talk about health insurance becoming a commodity, in which there are scarcely any product differentiators. This leaves only one basis for choosing one company over another: price. This is already the prevailing view on the exchanges, that share is predominantly determined by price, as the offerings don’t differ much between companies.
So overall, is this good or bad for consumers? On the one hand, some say that bigger health plans means less cost per enrollee due to the economies of scale just discussed, and that the mandatory medical loss ratios built into the ACA mean that the savings that result are often passed on to the consumer. Others warn, though, that consolidation reduces competition, and allows oligopolies to raise prices without the threat of being undercut by smaller and hungrier competitors. Providers in particular are loathe to face bigger and bigger insurers, even as they consolidate to gain more market leverage of their own. Time will tell, but the incentives are undeniable: big is in, on the insurer side as well as the provider side, and it’s based on pretty simple economics.

July 8, 2015 at 3:41 PM Leave a comment

Five things I think I think about how the health care delivery system is changing

I have the opportunity to speak to a number of provider groups in the course of my work, and many recently have asked about the big picture of how care is changing. Here are some of my answers:
• Getting bigger is in. The current dynamics favor larger entities. Despite our Marcus Welby mental ideal, the facts on the ground favor large entities that have access to capital (i.e., availability of money). Modern American health care delivery is very different from the Marcus Welby days. Then, one could convert the front parlor of a house into a waiting room and a back room into an exam room, hang a shingle, and voila! You had a doctor’s office. These days, it takes a lot of infrastructure, including an electronic medical record, computers, billing software, etc. to set up the same office, and all those things cost money. If you can have several providers sharing that infrastructure, it gets cheaper per provider. More than that, being competitive in the new market means understanding one’s performance precisely, and improving that performance continually. Understanding performance and improving it also takes time and money, and it’s disproportionately expensive for small providers to do so. This means large groups and institutions that can invest in their own infrastructure on a long-term basis have an advantage. There is some irony in this, as there is some literature that says the practices that are most successful in creating high quality care at a low price, are small. But nonetheless, the capital-intensive environment that is American health care in 2015 favors big.
• Vertical integration is in—again. After a couple of waves of integration between doctors and hospitals and then subsequent waves of disintegration, it looks like this one is more likely to be permanent. Statistics show that more physicians now work for large integrated systems than those that remain independent. Accenture, a large consulting firm, estimated that in 2013, only one in three physicians remained independent. Physicians employed by larger entities are now the majority, and a growing segment of the population.
• Getting closer to where patients are, is in. One of the anomalies of medicine vs. other goods and services in America is that people still have to drive somewhere and often wait to obtain those services. Think about how other goods and services have evolved. Much of our consumer economy has migrated to the Internet, through Amazon, eBay, and other online retailers, where customers shop at their own convenience rather than during “store hours”. Amazon is up, Sears is down. Some entrepreneurs are following this model and bringing health care closer to where patients are already. We haven’t quite gotten to health care being delivered predominantly over the Internet, but we’re trying to get closer to the customer nonetheless. Evidence of this trend: CVS has just agreed to acquire Target’s in store clinics and pharmacies for $1.9 billion. And why not? People were going to Target anyway. Why shouldn’t you be able to pick up a flu shot where you buy sneakers or milk? The key is offering your services where people are going to be anyway, rather than forcing them to make a special trip to access what you have to offer.
• In(patient) is out and out(patient) is in. Many services are migrating from the inpatient setting to outpatient, and outpatient into residential. Part of the reason is cost, but there are other forces that favor this. One is the continued mass customization of our society. A recent commercial says, “Sort of you isn’t really you.” Why should consumers settle for a standard product when it can be customized to them? This is getting cheaper by the day as computers make this mass customization inexpensive and easy. A business card company advertises that it can print hundreds of business cards for you, each with a different image on it. So why should my hip replacement be done in a hospital when it can be done safely, closer to home, and more cheaply for me as a low-risk patient at a surgical center? The hospital is still there for the high-risk patient if need be, but there’s no reason to waste all that high-tech shininess (and cost) on someone who doesn’t need it.
• Quality is getting customized, too. Part of the problem of buying value in health care is making it relevant to the individual purchaser. We have very broad and general measures, but few of these speak to the average patient. How do other industries handle this? By surveying and adjusting services endlessly. By doing so, they evolve from a general definition of quality to one specific to each customer. I use a travel site to plan all my trips, business and leisure alike. Recently the website started showing me hotel picks that are selected “just for me”. What they are doing in the background is taking my past search parameters and applying them to new cities I visit. If I booked a midrange, quiet hotel in the center of the city the last few times, that’s what the program will look for in the next city. Health care is a little harder because we access it episodically and with widely varying intensity, depending on our health needs. Despite this, it is possible now to predict much more precisely what services are more likely to be satisfying to individual patients through the power of big data. The upshot of this is that the power to predict quality and satisfaction is migrating from institutions (e.g., NCQA certification) to crowd-sourced individuals who are more and more empowered to find information relevant to them individually, and contribute their own experience to the pool for the next customer.
These five trends mirror what has happened in other industries over the past couple of decades. Sellers get larger and more comprehensive to relieve the consumer of the burden of putting together a satisfying experience on their own. Buyers get more discriminating as sellers put together more satisfying products through customization. As what sellers offer gets more satisfying, our tolerance for less-than-satisfying services and experiences goes down. Such is the endless cycle of improvement that free markets foster.
The upshot of this is that it is no longer enough to offer services; those services have to be fine-tuned to the potential customer, offered at times and places convenient to that customer, and then executed expertly to produce a good outcome at a good price, within a good patient experience.

June 24, 2015 at 3:19 PM 4 comments

Back from the Second Annual Summit on Transparency; What’d I Learn?

In case you missed it, last week was the Second Annual Transparency Summit in Washington, a fabulous wonk sprint of two and a half days on all things transparent and emergent in health care transformation. While these conferences are always biased toward the true believers of the concept in the conference title, I left with a number of insights:
• Transparency of what, and to whom? While we tend to think of transparency as consumer information, just as critical is transparency of measurement and judgment for providers. My friend Michael Van Duren from Sutter likes to say, “In what other situation would you tell an employee, ‘your performance is bad. Fix it, despite the fact that neither you nor I have any idea how.’ That constitutes employee abuse, and it’s exactly what we do with physicians when we give them feedback most of the time.” We need more transparent and actionable information to providers to drive real delivery system change, the kind that Michael gives to his docs at Sutter all the time.
• Most at the conference agreed that increasing transparency in an opaque market is one of the reasons we should hope that health care reform might be effective. But as we teased out the nuances, it dawned on many of us that likely transparency is going to be necessary but not sufficient. The “last mile problem”, translating information into knowledge that drives action by both consumers and providers, may be emerging as the bigger, hairier human behavior problem twin to the technical problem of data massage into information. There were many examples during the conference. In one breakout session, my OB friend Neel Shah told the audience that studies show that most women want more information, but very few actually seek it out and use it in their conversations with providers. A patient spoke eloquently on the subject in the same session: “Patients don’t have the provider’s knowledge, so don’t know what to dignify in the room by asking about it. They fear looking stupid, and so they don’t ask. But what you don’t know is, while you can’t measure how I feel, it is the most important thing to me once you tell me I have a serious illness.” Even if we make clinical information more transparent as we are doing, what do we need to do to correct for the traditional sociologic factors that stifle real dialogue at the point of care?
• A fascinating emergent area, sorely needed, is patient-generated data. Prior to the conference, I thought of that mostly as people stopping to enter something on a kiosk after a clinical encounter, or responding to a survey online like you might do after a plane flight. What speakers at the conference were saying, though, was that much more data is going to be generated passively by patients through the onboard computers they carry on their phones. In addition to getting the subjective sense of an encounter through satisfaction surveys, much more info may come through Fitbits and Apple Health apps that monitor multiple personal factors automatically, without conscious thought by the individual. The metaphoric stick figures we draw right now may become much more sophisticated representations in the near future. The additional pixels to take them to high-definition will come through this automated data generation. In retrospect, this seems so obvious. Anything that requires my attention span is limited by that span’s availability. Competition for that commodity goes up daily. Much easier to get data where the only thing I have to do is walk around with my smartphone.
• Population health or individual experience? Answer: yes, and yes. While we are quite focused on population health these days, this concept can very easily and unknowingly become a goal opposed to individual experience. Fellow panelist Dominick Frosch described such an example. When we demand that patients come in for a screening colonoscopy as the only option to reduce colon cancer risk, we may scare off a significant percentage of the population who would do a stool test that is inferior as a screen, but is still way better than nothing. What we may not recognize is that the way we measure adequate colon Ca screening may dictate that rigid provider approach: if she doesn’t get the colonoscopy done, the primary care provider gets “dinged” in her system or health plan for not doing an adequate screen. And yet it’s what an informed patient, weighing her individual risk and benefit, has chosen for herself. In the future, metrics may become more mass customized to individual risks/characteristics/benefits/preferences. Why? Because computers allow us to do so, and individuals demand it be so in an increasingly mass customized world.
Finally, the most important transparency may be transparency of humanity. What became painfully obvious over and over again during the conference is people can’t hear and use any of the flood of information coming their way until they trust the people in the transaction. Whether that’s a routine office physical in which a provider offers a screening colonoscopy, or a crash situation after a major motor vehicle accident injury, feeling some common humanity between providers and patients is critical to the real dialogue many of us feel is at the core of value-based decision-making. A friend who is a cancer survivor once told me, “what I needed in a provider is someone who could say, ‘in your situation, this is the option I would choose with the least regret.’” We all crave to be cared for when we cannot care for ourselves by people who recognize and address our humanity, and share theirs with us. This desire is embedded in us deeply, in areas of the brain far below conscious thought, and it is these same areas that rule our behavior in important decisions. Allowing ourselves to be human as providers and patients together gives us the best chance to choose wisely, and live without regret. I’d say those are two really worthy goals.

March 25, 2015 at 10:57 AM Leave a comment

Portrait of American Health Care

There are several articles to commend in the November 13th issue of JAMA, a special issue devoted to “Critical Issues in US Health Care”.  But perhaps the most important one, by Moses et al, is a wonderfully detailed snapshot of the American health care system over the past three decades, and how it has evolved over that time.  Some interesting observations:


  • We all know that health care inflation has exceeded general inflation over that time.  But there are a few ways that can happen: we can use more stuff per person, we can have older people who on average therefore need more care as they age, or we can raise prices for the same services.  Which one is the biggest factor?  The surprising answer is that the increases have come mostly from increased prices, and not increased intensity of service or older average population.  So if that’s where the increase has come from, perhaps our prices have been allowed to rise through us not knowing how much medical stuff costs?
  • Is insurance paying more or less of the bill now than in 1980?  Despite the general impression that purchasers are pushing more of the bill onto individuals, the answer is that out of pocket spending for health care is declining as a percentage of the total bill.  Most of the compensatory increase has been picked up by government in the form of increased Medicare and Medicaid spending.  So we shouldn’t conclude that we aren’t spending more on health care as individuals.  We are.  We’re just spending an unfathomable amount more as governments and employers, more money than most nations’ GDP.
  • True or false: most of the money we spend on health care is for the care of the elderly?  False.  80% of total national HC expenditure is on individuals younger than 65.  As with those over 65, most of that money is spent on chronic disease care.  So the thought that simply reforming Medicare will get us back to sanity is wrong.


The article goes on to identify three big factors that the authors think produced these results: industry consolidation, information technology, and consumerism.  (At CIVHC we talk about the three tsunamis: debt, information, and the empowered consumer.  More on that later.)  The sectors that are consolidating fastest are insurers, pharmacy benefit managers, and physician groups.  The consolidation of these sectors as well as with others like hospitals, affords the resulting organizations the market leverage to raise prices.


IT, including the installation of EHRs and the infancy of the use of Big Data, is beginning to reduce the fragmentation that is the hallmark of American health care inefficiency.  But we are in a phase in which that massive investment, public and private, has added to cost, but the returns from reduced fragmentation are just beginning to accrue. 


Finally, after a long tradition of paternalistic relationships in medicine, consumers are demanding that the industry begin to produce products they want to buy, not simply what the industry thinks is best for them.  But as anyone who has used the system lately knows, health care has a long way to go be as customer centric as the average online retailer who remembers what you’ve bought before and offers you similar items when you return to the site.


I speak on these topics often, and it strikes me that the changes we are watching are not simply roiling health care, but the structure of American society.  The same factors that are driving change in health care are changing other industries, and challenging them to make a better product or experience, with more stuff at lower cost and delivered exactly as we need and want it.  As I type this, I am listening to Pandora, where I’ve customized the station to my musical tastes.  I did that for the cost of having to listen to an ad every half hour or so.  Now why did I buy albums in the past?  I can’t remember.


The first shift is from a society in which people assumed that everything could be bought on credit, and that debt could be accumulated indefinitely without consequences.  While this is still hotly debated among economists, it doesn’t make sense to the average person that you can get something for nothing; eventually, you have to pay your debts, or someone else does.  In health care, the someone else is the next two generations, on whom we’ve loaded several trillion dollars’ worth of debt, much of which was incurred for that increased Medicare and Medicaid spending we mentioned previously.  The mental shift from thinking that the Internet driven stock market would pay for a multitude of sins, to the horrible realization that we might have to pay up ourselves, is sobering indeed. 


The second shift is the explosion of information technology.  We aren’t using it well or effectively for the most part yet, but we’ll get the hang of it, and when we do, we’ll use it individually and collectively to drive services to value, the way it works in other industries.  There are a bunch of interesting experiments out there currently, including Centers of Excellence networks, mobile apps that identify value providers for those paying their own bills (like people with high deductibles, which will eventually be most of us), reference pricing, and the emergence of all-inclusive bundles for elective services.  Two factors kept us from shopping for medical services the way we shop for cars and dishwashers: first, almost no one cares about price when spending other people’s money (think expense accounts), and second, if your customers don’t care about the money, then who bothers to put out a price list?  But benefit designs that make patients into consumers again, e.g., reference pricing, will awaken all of our inner shoppers, and when that happens often enough, the price list will become de rigeur among providers.  Why will we go to all this trouble?  See the section on debt above.  Remember, it’s looking grimly like we’ll have to settle our own bills, within our own lifetimes.


The final shift happens when you get people spending their own money and information technology gives them Ebay pricing and rankings for providers.  There are large employers who are already doing this for their employees, and part of the appeal for private exchanges will be these kinds of shopping tools. 


There will still be problems, no doubt.  Emergency care is still a problem, in that when you fear dying, you’re not very price-sensitive.  In that circumstance, “trust me” from an ED doc sounds like a mandate, not an offer to purchase.    But I think the era of blind purchasing in health care is over.  And that will make the kind of article Moses et al produced all the more interesting when we look at our current decade in retrospect.

November 22, 2013 at 4:07 PM Leave a comment

The kitchen table conversation about what we can afford

An elderly couple I know had a division of labor at their house many years ago: Ed was responsible for financial planning, saving for retirement, etc.  Marge was responsible for day-to-day bill paying.  One day, when times were tough and the bank account thin, they received a notice that they were overdrawn. 

            “How did this happen?” Ed asked Marge.

            “Well, it could be those checks I wrote to charity,” Marge said sheepishly.

            “But did you check to see if we had money in the account?” Ed asked.

            “No, I assumed we did—because we still had checks,” she replied.  “Ed, you should have seen those people—they needed coats, and groceries.”

            The reason I bring this up is that I think our country’s finances currently work a lot like this.  We continue to write checks, because there are checks left in the checkbook, not because there are sufficient funds to pay them. 

And, we are doing it for the best of reasons: because we are trying to assure our neighbors get things we feel are human rights, namely health care for the elderly, the disabled, and the poor.  We are scrimping on repainting the house, fixing the water heater, and funding the kids’ college accounts, all to write checks for more health care.  It is borne out of compassion, and many of us feel pretty noble about that.  We’re not going into debt for ourselves, but for the benefit of the sick and the needy.

But compassion or not, there is a day of reckoning when we realize that we can’t continue to spend what we don’t have and aren’t likely to earn in the future.  Many of us think that day is today.  Or maybe yesterday.  In any event, with the debt we’ve incurred, the interest payments alone would be enough to worry Ed and Marge that they’d never catch up.  They’d know that they just didn’t have that many raises left in their working lives. 

The sequester, taking effect at midnight absent a miracle, is an attempt to deal with something like Ed and Marge’s predicament.  While we as a nation made pledges to charity (and bought a big house) based on the thought that we would have ever increasing incomes, the reality is not so rosy in a tough world economy.  Generous people that we Americans are, we’ve taken no raises in the aggregate for ourselves in this last decade; all of our raises have gone to paying interest on our past generosity and increasing that generosity through more health care spending.  The president’s Council of Economic Advisers projects that on our current trajectory, that trend will continue through at least 2040.  As a result, our standard of living has stagnated and will continue to do so in the next quarter century.

Ironically, the sequester makes cuts to almost everything but the main thing that is putting us deeper in debt: Medicare and Medicaid.  If we are ever to stabilize our debt, we’re going to have sit down at the kitchen table, and figure out what proportion of our income will go to health care to reflect the compassion we feel for our neighbors.  But what’s left must still allow us to fix the water heater, paint the house, and start putting money into the college fund again.  We can figure out that number, just like Ed and Marge did.

March 1, 2013 at 11:40 AM Leave a comment

Bowles-Simpson is no match for the sequester

Erskine Bowles and Alan Simpson announced this week another proposal to right the budget over the next decade, proposing both spending cuts and revenue increases.  There are many striking things about it, but one of them is that it actually demands cuts to Medicare.  As it is, the sequester will cut domestic programs, but leave Medicare and Social Security untouched.


And so while it is not being framed this way, what we are watching is de facto a question of how much we are willing to give up now in order to preserve the illusion that Medicare is an unlimited entitlement, for another year or two.  In Bowles-Simpson, discipline is imposed, provider fees are cut, higher efficiency is demanded.  None of this would be popular with doctors, hospitals, or other providers in the industry, and their lobbies I’m sure would work hard to defeat this proposal, should we ever give it serious consideration.  In the sequester, we cut virtually everything else, but Medicare in all its inefficient, fee-for-serviceness remains a happily overgrazing sacred cow. 


The process of making that choice would be hard enough in a calm, rational environment.  In that hypothetical world, we’d understand the consequences of each choice, we’d listen to those who would be affected thoughtfully, and we’d make tradeoffs and compromises so that every constituency would be mildly unsettled but not threatened with nonexistence. 


But we don’t live in a calm, rational environment.  We live in a world where poorly informed votes are prized (since they count the same as well-informed ones), emotion sells air time, rationality is often defeated by fear, and the short-term arbitrage almost always trumps long-term investment.  In this environment, my sad suspicion is that the fear of a catastrophic future loses to the prospect of a painful present most of the time.  Through our continued inability to address Medicare decisively, we are increasing the odds of both, year by year. 

February 22, 2013 at 12:52 PM Leave a comment


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