Written by John Goodman
The Obama administration has told us how it intends to change Medicare many times and in many places.
It wants to replace fragmented decision making by independent doctors with coordinated care delivered by doctors working in teams, connected to a medical home. It wants Medicare to purchase quality, not quantity. It wants decisions to be evidence-based. It wants electronic records in order to standardize care and reduce errors.
So how does the administration plan to get all this done? It plans to spend hundreds of millions of dollars on pilot programs to try all these ideas out and then ……
Wait a minute. Aren’t these ideas already being tried out somewhere? Yes. In Medicare, as a matter of fact. How well are they working? As a long-time critic of managed care, I admit the results look pretty good.
So if the Obama administration’s core ideas have already been tried and tested and they are well underway, why are we spending hundreds of millions of dollars reinventing the health delivery wheel? I thought you’d never ask. If you are practical and pragmatic, you wouldn’t — especially when the government is running out of money anyway. But if you are intensely ideological, there are three reasons:
I know. It’s so bizarre that not even J.K. Rowling could make up a story like this.
Before going further, let me clear up an important point about the organizations that are involved in Medicare Advantage.
About one in every four seniors has enrolled in a private insurance plan, offered by such entities as Aetna, United Healthcare, Humana, Cigna, etc. Medicare pays these plans a risk-adjusted premium (reflecting the expected cost of the enrollee, based on age, sex, previous medical history, comorbidities, etc.). Sometimes these plans pay for medical care the same way the conventional Medicare program pays. But for the present discussion, a more interesting arrangement is one in which the actual delivery of care is carried out by an entirely separate entity.
At the risk of overwhelming you with acronyms, these entities are variously called Independent Practice Associations (IPAs), Medical Services Organizations (MSO) or Integrated Delivery Networks (IDNs). Let’s just settle for IDN. Under a typical arrangement, the insurer will specialize in the insurance aspects of the plan (benefit design, actuarial analysis, claim adjudication, marketing, accounting, etc.) and the IDN will specialize in health care delivery. This is important to know because it is typically not the insurance company that is experimenting and innovating with new designs in how to deliver medical care. It is a group of doctors in an IDN who are doing it.
An example of an IDN that is already doing what the Obama administration wants to try out with expensive pilot programs is IntegraNet of Houston, an organization with a network of about 1,200 doctors. Every Medicare patient has a medical home. The physicians follow evidence-based practices. Care is integrated and coordinated. Electronic records are being introduced. It appears that quality is higher and costs are lower than in conventional Medicare.
So what’s not to like? If the folks at CMS had any sense, they would camp out in Houston and try to find out how all this works. Instead, they have been spending their time and your tax dollars producing a 427-page book of rules on what Accountable Care Organizations (ACOs) have to look like….
Oops, did I forget to mention: The administration is so confident of how the pilot programs are going to turn out, that it’s not waiting for the results. It’s already decided that medical care should be delivered to all Medicare patients through ACOs and it has already decided what they should look like down to the smallest detail.
Not only is the 427-page book of rules not based on real world experience, the Mayo Clinic and most of the nation’s top level health centers have announced they don’t intend to participate.
In the meantime, there is no doubt in my mind that IntegraNet doesn’t satisfy all the government’s requirements by a long shot. For one thing, it pays its doctors fee-for-service. The Obama folks are convinced fee-for-service payment is the problem, not the solution. For another, IntegraNet intentionally pays doctors more than Medicare’s standard rates. Yet the administration’s Plan B for cost control is squeezing provider payments, not increasing them.
A third problem is that it is producing a medical loss ratio (MLR) of 70% or less for its insurance company clients. As previously reported that is 10 percentage points less than the minimum MLR the Obama administration thinks insurers should have. But that extra 10 percentage point profit (shared by the IDN and the insurer) is the whole reason IntegraNet is in business. No one is going to take risks and try new things if they can only get a regulated-utility rate of return.
IntegraNet is not alone. In many other Medicare Advantage plans practitioners are already doing what the Obama administration says it wants to do with Medicare as a whole — without any prodding or nudging from the federal government. That is, many of these plans are using coordinated/integrated/managed care systems to achieve fewer admissions, fewer readmissions and fewer hospital days than conventional Medicare. (See the latest summary of the evidence by Jeff Lemieux in a comment at the Health Affairs blog.)
Of particular interest to me is the opportunity to give money back to patients who make cost-effective choices (a subject I will consider at great length in the future). A number of IDNs are way ahead of me — rebating some or all of the senior’s Part B premium if they will cooperate and choose a medical home. As Larry Wedekind, IntegraNet CEO, explains:
It is the beauty of competition in a marketplace with several competitors all bidding for additional business from seniors. The ones that we have seen in the Houston market have ranged from a full Part B premium give-back to seniors to a 20% portion of it…I’ve seen as low as $20 per month give-back to full premium give-back of $96 per month in the past. The Part B premium this year is $110.50, but no one is giving more than $50 per month back this coming year. The give-backs are often related to a Medicare Advantage Special Needs Plan such as a diabetic plan to help defray the higher costs of drugs.
The sad irony is that many of these plans, along with their innovative ideas, may be pushed out of existence by the very administration that is touting the techniques they have pioneered.
John C. Goodman is president and founder of the National Center for Policy Analysis, a free-market think tank located in Dallas, Texas. The Wall Street Journal and the National Journal, among other media, have called him the “Father of Health Savings Accounts.” Dr. Goodman’s health policy blog is the premier right-of-center health care blog on the Internet. It is the only place where pro-free enterprise, private sector solutions to health care problems are routinely examined and debated by top health policy experts across the ideological spectrum.