Incentives in Health Care Delivery

The NYtimes actually has a pretty good article about the perverse incentives in how we pay for medical care. Basically centers that would help people control diabetes and prevent nasty complications were money losers even though they produced very good results. However the nasty complications are quite profitable. This is one of the essential problems in making health care delivery more efficient. We need better ways of rewarding quality care that prevents bad outcomes because the really expensive stuff is the hospital care. Pay for performance (P4P) is a tiny step in the right direction but we need better information and all the stakeholders on board.

Medicare Advantage - Payment and Risk Adjustment

Medicare Advantage - formerly known as Medicare + Choice - formerly known as Medicare Risk - this is a program where private health insurance companies contract with the federal government to replace regular Medicare FFS with equivalent or better benefits. The theory is that with managed care the private sector could provide benefits more efficiently. In reality - they mostly can't. What the MMA did was make sure that *at minimum* private health insurers get at least FFS costs and in many places substantially more. In addition - in the past insurers were paid based on the demographics of their enrolled population but the people who tended to enroll were actually healthier than the average person in their demographic - this is known as "cherry picking". Medicare has been phasing in risk adjustment of payment where health plans get paid according to the risk profile of the people enrolled. This gives plans more of an incentive to serve sicker populations that could benefit from more intensive management of their care. However the "budget neutrality" adjustment still makes it so that the total dollars going to private plans is the same as if they were paid according to demographics - the money is just allocated slightly differently. Basically we are paying private companies extra profits and due to the way the payments are calculated the extra payment is especially concentrated in certain areas (wanna guess who recieved the most benefit in Medicare Advantage from the MMA?)

Also Private Fee for Service - may write about how this is a silly idea later.

Quality Schmality!

Managed Care Magazine is an excellent resource for exploring the trendy topics in Heath Care. The way managed is defined most people with health insurance have managed care which can be HMO/POS/PPO plans. Health care management is defined by the types of restrictions that are placed on the care delivery. HMOs have the most restrictions where the network of doctors is smaller, to see a speciallist you need a referral from a "gatekeeper" and they scrutinize whether hospital stays are necessary or put a limit on the length of a hospital stay. There are also no out of network benefits except in an emergency. In a PPO setting basically the "management" comes down to who is in your network. In practice most PPOs have an expansive network and a doctor in the network has to literally commit fraud or demand an exorbitant fee amount to be kicked out of the network. This leads to PPOs not being very good at controlling costs or directing people towards the most efficient providers. On the other hand HMOs generated a backlash because they were perceived as too restrictive in what they would cover and the choice of doctors. I think that part of the shift away from HMOs has to do with the people making the decisions about benefits and their personal preferences for their health plan. Another reason was the understandable backlash from physicians who weren't getting paid as much from the HMOs and were on the hook for some of their patients expenses. HMO reimbursment is much more complicated - and if doctors didn't have certain analytical capabilities they could get into serious financial hot water. Anyways with the unsustainable cost growth in PPOs now there are 2 hot methods of trying to slow the cost trend by getting consumers more involved in selecting more efficient providers. 1. Consumer Driven Health Plans - involving consumers by giving them a pot of money, a high deductible and hopefully cost and quality information. 2. Tiered Networks, selecting a subset of the full PPO network based on efficiency and theoretically quality. Then giving people an incentive to go to the selected providers by cost sharing differences. From experience I am highly sceptical of either to do anything meaningful to slow cost trends. But to even work on the margins there needs to be good data and information available to base decisions on. This article gives a nice rundown on where these efforts stand right now.

One good thing about the MMA

Most of the Medicare Modernization Act of 2003 is utter crap (and annoying crap for those of us in health insurance to sift through) BUT there are small parts of it that are actually good things. The Disease Management industry is plagued by lack of rigorous analysis that supports the hype it claims. What Medicare Health Support formerly known as the Chronic Care Improvement Program does is conduct a trial by taking two equivalent groups of ~20,000 people with traditional Medicare Fee For Service (FFS) The people are selected by having expensive health conditions (diabetes and/or congestive heart failure, chronic obstructive pulmonary disease (COPD)) and half are assigned to a disease management program. The other half are the control group. The disease management companies submitted bids to provide services to the intervention group and guarantee a net 5% savings to Medicare or their fees are at risk. This is a step towards figuring out what kinds of disease management activities are the most cost effective and towards making the disconnected pieces of the health care system work together more effectively.

first post

This is *the* blog that i've been meaning to write. Hopefully links and wonky detailed insights into the inner workings of health insurance companies. Working as an actuarial type person, I have learned a lot about the nuts and bolts of what makes health insurance work (or not) and the powerful interests that contribute to the mess that is the US health care delivery system.