We offer a practical solution to the issues that Jack Wennberg and Shannon Brownlee raised in their November 17th blog, “The Battle Over Rewarding Efficient Providers.”  We combine our experience in areas of law and patient care, respectively.

American health care is in real peril of being swamped by surging costs.  President Barack Obama’s budget director, Peter Orszag, put it well:  “If we fail . . .  to move toward a high-value, low-cost health care system, we will be on an unsustainable fiscal path, no matter what else we do.”

To get this done, we have to change to a referral system that rewards high-value, low-cost health care.

The key to our solution is to look outside the government programs initially.  It is technically difficult and politically threatening to change how doctors, hospitals, and other providers are paid–from payment for volume to payment for patient value.  As our first step, we focus on the 100 million people with self-insured benefits — 2½ times as many people as Medicare covers — whose decisionmakers are outside the political and lobbying process of Medicare and other government programs.  Just as importantly, they have the legal freedom and flexibility to experiment, innovate, and act.

The key to our solution rests on a little-recognized but critical legal distinction between state-regulated insurance and self-insured employee benefits.  Contrary to the popular use of the term “insurance,” only about half of the 260 million Americans with health benefits have state-regulated health insurance or HMO coverage.  The other half have self-insured benefits that are not regulated or taxed by the states as a matter of state insurance law.

Total Americans with Health Benefits 260 million
Individual Insurance (state-regulated) 20 million
Medicare 40 million
Medicaid and Other Government Programs 40 million
Employee Benefits 160 million
¨       State-Regulated Insurance 60 million
¨       Self-Insured 100 million

In this self-insured and “unregulated” group, approximately 100 million have self-insured employee benefits paid for by employers or collectively bargained funds, including VEBAs (Voluntary Employee Benefit Associations), Taft-Hartley plans, and state and local governments.  By contrast, people enrolled in traditional insurance and HMO plans are barred from seeking the best and lowest-cost care because these plans are handicapped by state regulations, unfunded state-mandated benefits, and state-licensing restrictions that limit competition to only insurance companies and HMOs licensed in a state, all of which prevent individuals and companies from seeking lower-cost options.  The costs imposed by the 50 state insurance regulations are large, as demonstrated by the Medicare Part D program that was enacted to make sure state barriers to insurance competition did not apply.  As a result, Medicare Part D costs have been much lower than estimated because of interstate insurance competition.

It is estimated that billions of dollars could be saved annually by addressing efficiency and overutilization.  The best medical organizations that exercise coordinated care have demonstrated both savings and consistent high quality.  The Dartmouth Atlas Project has documented that expensive medical conditions can be treated at lower cost by provider teams with documented best outcomes.

Across the country, there are not-for-profit group practices in which physicians are paid a salary and have no financial incentive to overtreat or overtest patients.  They offer team treatment similar to what Michael Porter and Elizabeth Teisberg call “integrated practice units.”  By this method, all the medical and surgical specialists involved in the treatment of one or multiple organ system diseases collaborate to achieve the best possible outcomes for patients.  The Cleveland Clinic, for example, now offers coordinated care through more than 20 different collaborative “institutes.”  Each institute publishes quality and outcomes data to help the public and physicians make informed choices about and when to refer patients for the best care.  As a practical and political matter, however, how can the public take advantage of these cost-lowering and improved patient care opportunities?

Past history shows that some of the most important and beneficial changes in provider reimbursement have emerged from self-insured employee benefit programs.  In the 1980s-90s, self-insured employee plan innovations were successful and led other private and public payers to slow the growth of government and private health care expenditures.  The Congressional Budget Office confirmed that this was “the slowest rate of growth in over 30 years.”

Today we have the opportunity is to accelerate innovation for the self-insured employer and collectively bargained programs of 100 million people, including the approximately 20 million people with self-insured state and local government health benefits.  If more patients sought treatment for their condition from the most efficient and effective patient teams, and these patient teams could be paid for patient value rather than for providing more services, it would reduce the cost of health care.    Savings could be (1) cash savings and (2), when applicable, accrual savings under Financial Accounting Standards Board (FASB) 106 for private programs and Governmental Accounting Standards Board (GASB) 45 for state and local governments with retiree benefits.  Then the best provider patient teams (lower costs, better outcomes) could be rewarded from the savings for exceptional results.

We do not have to wait for the federal government to pass laws and implement reforms.  When government does act responsibly, it could stimulate even more innovation, for example, by bundling payments by disease, forming acountable care organizations, creating value-based insurance design, and other process improvements.  Whatever shape health reform takes, Americans will have more responsibility for their health care,  including wellness.  As information regarding quality and cost becomes more accessible to the consumer, patients will become more knowledgeable.  The informed consumer will seek the best value when patients have a monetary incentive to find the best care.   Consumerism will mean greater patient sovereignty, especially for serious illnesses.

Our idea is summarized as follows:

  • Our 100 million Americans with self-insured benefits could be offered the option of treatment by a patient team that offers that best outcomes for their condition(s), as decided by the employee benefit program.
  • Patients would have access to information allowing them to determine which patient teams offer the best results for their particular disorder and have new benefit incentives to use them. We anticipate that many patients would choose this option both for cost savings and for the higher probability of good outcomes.
  • Legally, reimbursement for patient value, rather than for providing more services,  can take place without state insurance department approval as long as capitation and other premium-like payment methods are not used.  Thus patient teams, insurance companies, and others would have an incentive to experiment with and develop new payment methods based on high quality and lower costs.
  • The patient team idea would encourage state insurance reform, including increased interstate insurance competition and reduced (ideally eliminated) unfunded benefit mandates.  This would result in lower costs and more options for small employers and individuals.  These reforms specifically need to be extended to the new ideas of accountable care organizations and nonprofit cooperatives. These ideas add competition such as the Medicare Part D program and would not be blocked by state barriers to interstate insurance competition.
  • These innovations could be adopted by Medicare and Medicaid and might reduce national and regional variations in cost and care.

Federal and state policymakers have opportunities, at little cost, to stimulate and support fast adoption of this path to payment for value.  By making outcomes and payment readily available for pilot programs, “bundled” payments for value will reduce spending.  The definition of accountable care organizations should be expanded to take advantage of the legal flexibility of self-insured programs.  Successful innovations in the 100 million self-insured programs could lead to adoption in Medicare, Medicaid, and other government programs.

Peter Drucker once said that “the best way to predict the future is to create it.”  Let’s create our health care future by giving patients a path to greater value.  That would be the ultimate in pay-for-performance.

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