That posting was an excerpt from an essay written for the Society of Actuaries but includes an all payer system that is constructed a little differently and I think could gain greater acceptance in the market than a forced government schedule. Of course, as with anything, it could be viewed as the nose under the tent toward government price control but it doesn’t have to be.

http://www.hewittassociates.com/Intl/NA/en-US/KnowledgeCenter/ArticlesReports/ArticleDetail.aspx?cid=7108

Ken Sperling
Hewitt Associates

It is said among lab scientists that “One month of laboratory work can save four hours of research in the library.” When it comes to health policy, it sometimes seem that we Americans prefer to spend five years doing policy research than spending two weeks looking into the details of how the Europeans operate their systems.

Another gain of instituting a price control system would be lowering one key source of scale advantage for health plans: the costs of negotiating favorable contracts with providers across a broad network. Thus, the proposed price system would make it easier for small health plans, such as innovative plans put together by primary care physicians or community-based cooperatives, to get established. Competition among health plans would increase.

In the blog article I propose a price ceiling, rather than an all-payer price system. Each of these policy options has their advantages, and one could conceivably do both (i.e., each provider sets one price per service bundle provided and a ceiling determines the maximum price allowed).

Thanks Professor for highlighting price reforms, the less discussed half of steps needed for controlling medical costs.

CMS’ provider payment systems are well-researched, and I admire their determination to constantly improve them. On the other hand, in most instances, private insurers have adopted a hodgepodge of payment systems that are illogical, confusing to consumers, and expensive for providers and payers to administer. If you don’t believe me, take a look at the inane ways that ambulatory surgery center rates are negotiated! The APCs (ambulatory patient classifications) are not perfect, but they are an enormous improvement over the previous system. Ditto for RBRVS–does anyone remember the horrible system insurers used before 1990?

The idea of a “single payment” {as opposed to a single payer} system would have the potential to save billions of dollars in administrative costs. In a single payment system, negotiations between providers and insurers would be greatly simplified. Instead of fiddling with payment amounts for various CPT codes or per diem rates, the negotiations would be over a single number: the conversion factor.

One huge advantage to providers would be that with a standardize payment system, assuming the relative weights accurately reflect the average resources used for a given service, providers would no longer have to be concerned whether payment for a patient’s care is paid on the basis of discounted charges or DRGs. He/she could focus on taking care of the patient in the most efficient way. Similarly, home health agencies wouldn’t worry about whether they are paid on a per-visit or HHRG basis; they would given incentives to treat the patient most efficiently.

A single payment system would save insurers an enormous amount of time currently devoted to keeping track of various payment methods for different health plans. The administrative backroom costs in physicians’ offices, hospitals, ambulatory surgery centers and SNFs almost certainly would be reduced.

A single payment system would require continued research, using large datasets, to improve and refine them. CMS would continue to play an important role, but the Standard Analytic Files that currently are available for Medicare patients should include data from insurers.
Henry G. Dove, Ph.D.
Casemix Consulting, LLC
Lecturer, Yale Health Management Program

The most workable plan would be the one that simplifies the financial transaction required to pay for medical services, as well as provides full transparency. As far as regular office-based medical services are concerned, it is best to promote direct contracting between provider and consumer of services, namely physician and patient, respectively. This allows the consumer to make the choice of how to value care provided by any particular practice. Insurance plans that cover all office-based care (public or private) and allow for various levels of care, with or without deductibles, should be made available, premiums for which should be 100% tax-deductible. Hereby, each individual or family can decide what type of coverage best suits their needs. In addition, insurers/govt. should offer plans to cover medications, hospitalizations, laboratory/imaging services, which individuals/families can purchase either packaged with a basic plan or separately, based on their needs. This is the only way to ensure that consumers have a real choice of plans as well as physicians/hospitals/labs/imaging services, without unnecessary interference in clinical decision-making, that has completely decimated the patient-physician relationship.

Use of associations, etc as intermediaries will not solve the problem, as this would force physicians and/or hospitals to join associations that may not in their best interests, and would add another layer of bureaucracy to the process.

To simply say that cost for a particular procedure should be similar at different locations/institutions is like saying that the Ritz Carlton and Motel 6 located in the same state should have the same price for a night’s stay in a room with a queen bed. If only Mr. Reinhardt can extricate himself from his biases against a free market system in the health care universe, he could understand the analogy. Please provide adequate information/education and transparency to the consumer, so he/she can decide how much value he/she places on a particular type of medical care he/she receives.

Doctors don’t like a public plan because it will reduce their fees. They’re right. The same goes for hospitals. A public plan will reduce the fees paid to a lot of healthcare providers. So I understand why doctors and hospitals oppose a public plan, if they’re worried about fees. (The impact on income is less clear: if we succeed in reform, there will be an additional 50 million people calling for appointments and ordering refills.)

What I don’t get is why America’s Health Insurance Plans (AHIP) is still fighting a public plan. Why not simply support a public plan on the condition that private insurers also have access to the public plan’s payment levels? That would be an “all-payer” system, where each insurance company pays the same amount to a given provider. This does not mean that all providers are paid the same; just that any specific provider is paid the same amount by each health plan. Some hospitals might be paid more than others, and some physicians more than others – reflecting deliberate decisions to compensate some more than others. The only difference between today’s world and an all-payer world is that in an all-payer world, everyone gets to have a seat at the table when healthcare prices are discussed.

Rates would be set annually, by public-private entities at the state and local level, and would apply to hospitals, physicians, and outpatient services. These Regional Healthcare Pricing Councils (RHPCs) would be governed by a balanced cross-section of purchasers, patients, and providers, and could in theory be integrated into the function of an exchange, cooperative or a public plan. The RHPCs would also be authorized to establish the underlying basis of payment, whether hospital stay, office visit, bundled service, or episode-of-care. The RHPCs would NOT be authorized to sell insurance, provide healthcare services, or engage in any business-related activity.

This would accomplish a great many good things. First, all-payer rates simplify enormously the billing and collection processes, savings tens of billions of dollars annually as health plans employ fewer claims processors and price negotiators, doctors need fewer billing staff, and hospitals’ accounting offices are downsized.

Second, all-payer rates enable the rapid implementation, modification, and refinement of payment models that encourage efficiency, quality, and care coordination, consistent with local market conditions. Under the current arrangement, doctors and hospitals face a bewildering array of payment incentives, rewards, and penalties. An all-payer system translates the Tower of Babel faced by providers into a single set of incentives and rates; regional commissions assure that local issues – struggling hospitals, an abundance of a particular specialty, etc. – are reflected in the local payment system.

Third, we’re spending too much on healthcare, and one reason we spend too much is that a “unit” of U.S. healthcare costs too much. A day in the hospital, a visit to a doctor, and a pill each cost more in the United States than anywhere else in the world. The RHPCs will establish locally-sensitive, transparent and participatory processes to set all-payer rates, and arrive at fair — but not “too fair” — payments for a “unit” of healthcare. Providers could be differentiated using market forces by allowing plans to set differential copayment/coinsurance levels, incenting patients to seek out efficient providers

Fourth, our current system has failed the basic test of a marketplace: the ability to satisfy consumer demand. Our approach to setting healthcare prices has created huge, intractable, and damaging shortages and unexplainable variation in healthcare spending. We have nowhere near as many primary care physicians, general surgeons, and gerontologists as we need today – much less a decade from now. It’s no accident that these are three of the least-well compensated specialties in American medicine. We have more imaging machines per capita than anywhere in the world by a factor of ten. Our current price-setting approach to setting prices has some hospitals building multi-billion dollar expansions, while others have fewer than 5 days of operating cash on hand. We’re getting irrational results from irrational prices. At this point, any change is preferable to the status quo.

Finally, our current system has left us with the worst of both worlds. On one side, Medicare manages its budget by squeezing on price, and providers have the well-documented incentive to increase volume. On the other side, private plans often lack price-setting leverage, and try to decrease volume. The provider and the patient are caught in the middle. All-payer takes the issue of price off the table, and enables the comprehensive introduction of new models to pay providers on the basis of a single, consistent payment system that rewards value over volume.

Private insurance plans continue to oppose a public plan, which is understandable if they are to be relegated to a permanent second place. From a business perspective, the argument against a public plan – even if private plans have access to the public plan rates — is that today, it would set doctor prices; tomorrow insurance premiums. Premium controls turn health plans into regulated utilities, with little incentive for profit and innovation, or so the argument goes.

It’s possible but unlikely. It’s far more likely to result in a new burst of innovation, competition, and business opportunity as the insurance sector sheds its old business model of negotiating thousands of complicated contracts and employing tens of thousands of claims processors. Look abroad in the many European states that embrace an all-payer model, and where health insurance companies compete vigorously and reap the rewards of competitive excellence. A regionally-based, all-payer rate setting system would free doctors, hospitals, and yes, AHIP’s members, to re-direct their creativity, capital, and profit-maximizing energy to producing something of real value: a new healthcare system.

I take issue with a few of his characterizations. The design is not about bundled payments; it is about bundled budgets. It works for integrated settings and completely independent provider contexts. it is about clinical collaboration among them. It expects a cooperative undertaking by willing payors and willing providers, The conceptual breakthrough of identifying monies currently being spent on Potentially Avoidable Complications and giving half of it to providers to change their behavior and prevent some measure of admissions, services, and drugs which might have been unnecessary if care were rendered in accordance with science, can be the basis for sustaining the medical home. On our home page readers will find the three foundational papers which explain the creation of the rates, how they are scored, and how they can be used to pay for the medical home. There is no question that particularly for chronic conditions, the PROMETHEUS Payment model will provide significantly more money to physicians than they are currently paid today. And with that money they are expected to change how they deliver care so as to avoid complications. Even with that change, the system would save half of what is being spent today on those complications. We do not anticiapte ‘vast redistributions’ of power. We do anticipate a less antagonistic, more collaboratively oriented setting in which patients, providers and payors all will do better. Perhaps that might be said to represent a substantial reorientation from business as usual. We certainly hope so.