Wednesday, December 2, 2009

What was it about Canopy Financial that enamored VCs?

Canopy’s valuations implied a greater than 20-to-1 price to earnings (P/E) ratio, far exceeding your typical financial service provider’s P/E. What was it about the health spending accounts administered by Canopy that promised big scalable growth? What was it that promised to make Canopy the next Google or Microsoft? Two words: health data. While Google and Microsoft reinvent themselves with their own proprietary personal health record formats, Canopy had a stable system for collecting this data through the auspices of major financial institutions. The Google and Microsoft network has a great many nodes, many of which require costly business development efforts. Canopy, on the other hand, could touch hundreds of thousands of individuals healthcare transaction records through integration with a single bank. Those individuals’ millions of transactions are like the millions of individual decisions that Google’s search engine crawls to make the web meaningful. Canopy was going to out-Google Google on health, 1/7th of the U.S. economy.

Consumers using the Canopy platform had the ability to tag specific health spending account transactions with a particular category of medical care for a particular beneficiary, and electronically attach receipts to support tax deductions. This metadata was laborious for the accountholders to compile, but very valuable once compiled. In aggregate, it was the beginning of a cost-of-care database that spanned a variety of health plan designs.

Health plans have long been in the business of collecting cost information, but according to Dr. John Langefeld of Claremont Partners, health plans typically confound price sensitivity data by making macro benefit design changes in response to macro utilization trends. The constantly permutating benefit designs make it tough to have valid longitudinal data about individuals’ decisions for a particular clinical procedure. Canopy’s data, on the other hand, cut across multiple major health plans and geographies, and typically with a focus on pre-deductible spending.

This morning I learned from a former Canopy executive that at least one of its forward-looking bank clients looked to process of HRA and FSA substantiation to feed price data back from its accountholders back to its accountholder community. For the most part, however, Canopy’s clients were wowed by Canopy’s health data in theory rather than in practice. While Canopy’s bank and insurance clients were enticed by health data capabilities during the sales process, these clients seldom took full advantage of the capabilities that existed.

One hindrance to full realization of the potential of aggregate health data from bank transactions is concerns about privacy. Even once HIPAA compliance is assured, advances in technology create an arms race of technology to secure the data. Recent research at the University of Texas showed that the data must be anonymized to near meaninglessness in order to prevent skilled deanonymization. Nonetheless, aggregate health cost and quality information provides tremendous utility to society and individuals, and the transactional side of health care is the most scalable way to collect it.

For readers interested in porting over Canopy’s health data and/or developing a road map for consumer-participatory healthcare, please contact me here. As mentioned in previous postings, I am putting together a remediation team with experience in addressing these issues.

Friday, November 27, 2009

Remediation Plan for Canopy Financial Omnibus Custodians

The meltdown at Canopy Financial is apparently placing client financial institutions' customers at risk sooner than expected. With most of the employees laid off, there are serious questions about how much longer the servers will keep running. I myself have an account at Sovereign Bank and am monitoring the situation. For those of you at Sovereign, Wachovia, Fifth Third, or CareMark, I am liaising with ABA HSA Council members to coordinate a response.

Some alternatives to Canopy are readily apparent. Lighthouse 1 has announced its interest in helping former canopy clients. Metavante would be another choice. Both of these vendors already assume an omnibus model, just like canopy. As a public company, Metavante might better smooth anxieties after the Canopy fiasco.

The project plan for the actual transition will be more complex. A couple suggested starting points:

1. Sourcing replacement: make/assemble/buy. As a vendor and a purchase, I've used RFPs for HSA services that ran to hundreds of pages.
2. Managing customer reaction: needs quick PR pieces re: security of data, with focus on HIPAA processes and how the PHI on the system will be retained
3. Managing transition to new CIF, if possible, so as not to fracture the back office.   

If you are interested in learning more, drop me a line. I have a number of executives from the credit union, community banking, and software services industries that are collaborating on a solution.

Tuesday, November 24, 2009

Tough Times for HSA Software Vendors

In a recent post, I cited HSA adoption figures from Canopy Financial. TechCrunch reports today that allegations of financial irregularities may be taking Canopy down. As pointed out by the TechCrunch, Canopy had been widely perceived as the market leader. At present, their website is down.

Could it be that the health spending account software model just doesn't work? Earlier this year, Members Health Network, the leading HSA software vendor to the credit union industry, liquidated its assets. According to an executive at HSA Bank, which has done custom work to modify a more standard core accounting system, there is just "not enough money in HSAs to split between the custodian and a service provider like them."

It will be interesting to see what other firms may attempt to take their banking clients, like Sovereign Bank, who had charged ahead touting a whitelabeled version of Canopy's product. Yet another joy for Santander, which acquired Sovereign last year. My bet would be, which has been around for a long time cautiously growing its network of insurance brokers that support its product. [EDIT 12/02/09 -- HST 's parent company, according an an executive there, has "made a decision to focus our human and financial capital on the Insurance Company that we acquired and reduce our emphasis on HST".]

Thursday, November 12, 2009

Reid's Funding Mechanism for Senate Bill Rewards Cats

According to today's Washington Post, Senate Majority Leader Harry Reid will shortly be announcing a plan to pay for healthcare expansion by increasing the federal Medicare payroll tax on high-earning individuals. This would be a big win for those firms that coordinate consumer-driven healthcare mechanisms with employers to exclude income from the federal Medicare payroll tax. Current law sets the tax at 1.45 percent of income, an amount matched by employers. An increase to the tax would increase the substantial incentives already existing to coordinate health care around a site of employment (see earlier post on cats versus dogs for more on these incentives).

The increased tax would likely be restricted to individuals earning $250,000 or more. These individuals already have an incentive to contribute the maximum allowable amount to a family health savings account (HSA), $5950. While the employer's share of the Medicare tax avoided through those contributions is only $86, it pays for a lot of account administration fees. If the tax doubles, the incentives of employers to put HSA utilization programs in place roughly doubles as well. Using an ASP software service costing a few dollars per employee per month, the employer would net a substantial savings across a broad employee base.

Friday, October 30, 2009

Cats versus Dogs in Consumer Driven Care

In this multi-part series, I'll take a look at the cats and the dogs of electronic health records (EHRs), health savings accounts (HSAs), wellness companies, and the software companies that power them.
As a general rule, cats like places and dogs like people. In electronic health records (EHRs), the cats are the Epic Systems-type databases that capture everything relevant to a particular provider. The dog EHRs follow the patients around, attempting to interface with multiple provider settings, like Athena Health.

In the world of HSAs, the cats like to cuddle up to a place of employment. Credit unions are the most numerous cats of the HSA world. Several large credit unions sponsored by Fortune 500 businesses have more than 90% of the employer group as credit union members. While an employer-sponsored credit union will let you stay a customer if you lose your job, a big chunk of employer-sponsored credit union value proposition comes from the existence of a relationship with the select employer group (SEG). Credit unions with strong SEG relationships tailor their products the sponsoring employee group. Baxter Credit Union, for example, also has SEG relationships with CDW and Cardinal Health, each of which gets to see a differently designed website. The credit union makes sure that HR people at the employer are well-stocked with informational material about the credit union, may offer discounts to current employee within the SEG, and are sure to show up at benefits fairs to answer any questions about complex products like HSAs.

While complex, HSAs offer powerful advantages in a setting of high employee penetration. With more and more employers scaling back to high-deductible health plans (HDHP), we will likely to soon see more Fortune 500 employers go "full replacement" with HDHPs and HSAs. For those large employers with credit union relationships, suppose 90% of the employee group already treats the credit union as its preferred financial institution. That means the transaction accounts for medical spending are likely to be all in one place. This is a tremendous boon for the employer, who with appropriate technology can make sure that those transactions run through the HSA, boosting FICA savings. Using the latest figures from Canopy Financial, which provides HSA account management software for banks, the average family's HSA received $3528 in contributions. [UPDATE: need to double check these figure given recent news on Canopy] This generates FICA and Medicare tax savings of up to $269 for the employer per employee. At the same time, however, half of the people eligible for an HSA don't open one. For a 100,000 person employee group, that adds up to over $13 million in annual payroll tax savings forgone (50,000 * $269).

Technology solutions now exist that automate both creation of the account, and to “touch down” normal checking and credit card transactions for medical purchases in the HSA, so that the employer gets the full tax benefit. For those employees that otherwise would not contribute to the HSA, an automated routine can identify their actual medical expenditures from non-HSA accounts (or EHRs) and momentarily touch down a matching amount from their next paycheck into the HSA prior to moving the funds into their normal direct deposit account. Without any decrease in availability of paycheck funds to the employee, the employee has now accrued a tax advantage. With the average family's out of pocket medical expenses for HDHPs reaching $2620, an employee grossing $44,000 gets a $620 tax savings, equivalent to an $812 pre-tax raise.
In theory, this kind of technology could be deployed anywhere. In practice, it's a lot easier when the normal transaction accounts, direct deposit accounts, and HSA are all in one place. With the upwards of 90% penetration of the employee population select credit unions, the tax benefits are much easier to capture there.

In addition to maintaining stronger employer-sponsor ties, credit unions tend to be more technology savvy than their banking counterparts. Regulations prevented credit unions from running their own back-office systems until relatively recently, so they are much more likely to be real-time central information file (CIF) systems than their banking counterparts. Also, the capital structure of credit unions has necessitated acclimation to technology-powered growth strategies. While banks can raise funds by issuing equity, credit unions are restricted to the paid in capital of their members. With new branches costing $1 million, credit unions have traditionally focused on growing through non capex spending like internet banking.

How will all this fare in the next round of federal healthcare reform? Roy Ramthun, former advisor to the White House on Health Savings Accounts, predicts that credit unions are better poised than banks to influence consumer driven care in federal health reform. First, Roy pointed out the CUs are better positioned financially than banks. Second, Roy indicated that mobilization of grass-roots will be key. While "death panel" screamers at town hall meetings this summer didn't do much for the anti-reform crowd, credit unions have historically been very effective at mounting well-organized shows of support. With the opportunity to save their employer sponsors millions of dollars, my guess is that the credit unions will meow for retaining HSAs and related employer tax breaks.

Thursday, October 22, 2009

Pareto-Optimal Wellness Incentives or Big Bad Wolf

The argument that wellness incentives are a "wolf in sheep's clothing" to pass along premium increases for pre-existing conditions assumes that the health plan, government, or employer (the "third party payer") doesn't want the covered individual to meet the wellness targets. The corporate wellness programs surveyed in the recent Washington Post article, however, set fairly low bars for employees to meet. This seems to indicate that incentives drive third party payers to choose wellness targets that are achievable. Looking at UnitedHealthcare’s Vital Measures program literature, for example, “the benchmarks for each category vary, but in all cases are easier to achieve than those published by the National Institutes of Health.” See also the Healthy Blue from Blue Care Network.

When the government pays, the benchmarks have tended not to be outcomes-based. Florida's Medicaid reform efforts have entailed:

  • a $ 15 credit for six months of success in an alcohol or drug treatment program, a smoking cessation program, a weight loss program and an exercise program  
  • two $ 15 credits for keeping all of his primary care appointments 
  • one $ 25 credit for a colorectal screening per year
  • up to $ 125 in credits per year, and then they may use those credits to purchase first aid supplies, cough and cold medication, and other items at any Medicaid participating pharmacy.

The move from "pre-existing condition" to "wellness incentive" emphasizes personal responsibility and the possibility for future improvement. Certainly there will be some people who try very hard and cannot hit the wellness outcomes required for the premium discount, but they are likely in the minority. Moreover, in many cases the behavior of the majority is positively impacted by a shift towards wellness incentives in plan design.

Employees who bear direct increased financial costs due to a wellness incentives can still end up in a better overall financial position. A number of options exist for a Pareto optimal outcome, where the gains from a change to the system can be used to compensate those harmed in the system. Failure to achieve a wellness target, for example, could function like a health risk assessment to trigger more coordination of care through a disease management program. If a group plan were designed so that some of the savings from the healthy behaviors were used to pay for disease management for the less healthy, everyone would be better off. I don't see requirements for this in current versions of the legislation, but those concerned with system fairness might pursue this approach.

Aside from concerns about system fairness, wellness plans may wish to offer disease management services as a “reasonable accommodation” in order to comply with the Americans with Disabilities Act (“ADA”). Wellness programs that target employees with chronic conditions (often the cost-driver employees) will inherently face legal requirements under existing federal ADA regulations and local analogues. Consider the individual with diabetes, who is often the focus of a wellness plan. Diabetes is sometimes a disability under the ADA if, for example, the individual proves that she was substantially limited in the major life activity of eating because of a severely restrictive and highly demanding diabetes treatment plan. Fraser v. Goodale, 342 F.3d 1032 (9th Cir. 2003). Or consider the two municipalities in California which prohibit employment discrimination on account of physical appearance, which lends some protections to overweight employees. Santa Cruz, Cal., Or. 92-11 § 1(9.83.010) (1992); City & County of San Francisco, Human Rights Commission, Compliance Guidelines to Prohibit Weight and Height Discrimination (2001), guidelines.pdf.

Taking a health risk assessment arguably places the same burden on every employee, but the individualized health goals often will be much more arduous for an individual with diabetes. The net result: an employer is treating an employee with a disability differently than other employees. Thus the logic of the wellness plan offering disease management services which serve as the functional equivalent of a "reasonable accommodation".

Thursday, October 15, 2009

Data Liquidity, not Coffee, in the Donut Hole

“The future is here, it’s just not widely distributed yet” -- William Gibson

Looking at the tags for this blog, high deductible plans and health savings accounts figure prominently. According the Health 2.0 festival pundits, however, we may soon be witnessing a shift from consumer-driven healthcare to consumer-participatory healthcare. Data liquidity, among other trends, is giving consumers information as well as incentives to hold down health care costs.

As an executive at HSA Bank, we constantly reminded our customers to ask for generic drugs. Consumer Reports, the federal government, and insurance companies have all been doing this for over a decade, but many patients still don’t get engaged in seeking generics. AARP, for example, provides a tool powered by DestinationRx with one of the best online calculators for helping seniors avoid the Medicare donut hole. Approximately 30% of people still prefer name brand drugs, however.  The next generation of online decision tools could change that.

Companies at the Health 2.0 conference last week in San Francisco would make the search for not just generics, but alternative courses of therapy, harness the wisdom of crowds (including group psychology). The Health 2.0 conference explored the possibility that Web 2.0 tools like Facebook could better engage patients in making behavioral changes., for example, allows users to compare the effectiveness of name brands, generics, as well as other approaches to management of diseases and symptoms. You can quickly become a member and see what others with similar health conditions are doing, and how successfully. While not enough data exists for all conditions, your participation will help the site gain critical mass. This kind of group-oriented psychology has been an enormous success in social and business networking, and just might work in health as well. If anecdotal evidence of the boomer generations' enthusiasm for sharing photos and chain emails is any indication, chances are this kind of Health 2.0 technology will make a difference in the donut hole.

The Best of Health 2.0 Conference, San Francisco, 2009

1.     Social networks as a part of health (1) -- “You spend 15 minutes with a doctor, and the rest of the time with everyone else” – Chris Schroeder, HealthCentral, as interviewed by Elizabeth Cohen from CNN

2.     Social networks as a part of health (2) – “make personally relevant information clinically relevant” – anonymous

3.     Competition – “Our competitors are cheeseburgers, couches, and intertia” – Alexandra Drane, Eliza

4.     Hype Cycle – “We should pay people to smoke [because in the short term, longer lives are more expensive to the system]”. -- J.D. Kleinke, Mt Tabor Online Services

5.     Slices of a blunt object – “It’s a big jump to ‘manage your condition online’. Maybe we need to take a step back and start with ‘schedule an appointment’.” – David Cereno, Microsoft


Tuesday, October 6, 2009

Audacious Goals at Health 2.0: rounded tabs, perfect shading

What is Health 2.0?

After spending 14 hours at the Health 2.0 conference in San Francisco today, the pessimistic answer is that Health 2.0 is rounded corners and perfect shading. Many of the web technologies were accessed through a browser, so I started to get browser navigation fatigue.

Health 2.0, ultimately, is more audacious. My favorite proposition was by a Kaiser manager brainstorming a portable device that would assist patients with maintaining healthy behaviors. The use case described was a cross between a mood ring and LiveStrong bracelet. As described, such wristband would be deployed to a clinically obese patient, providing biofeedback and behavioral support. In this blog post I go a couple more steps to describe some of the possibilities that this could entail.

Device activation could occur by the wearer switching it on, or by an automatic trigger based on a biological indicator of increased risk of harmful behavior. If I start craving candy, for example, I could first switch on the device on my double-tapping or twisting the bracelet. Alternatively, a red LED on the wristband could take a glucose reading before I was conscious of wanting sugar.

In the scenario of automatic activation based on biological monitoring, the wristband could simply change colors to bring the wearer’s attention to the existence of a risk factor. Additionally, the device could provide various forms of explicit support. First, it could provide the opportunity for encouraging tweets from a community of peers in a weight loss program. Second, a brief message could be drawn from a database of tailored suggestions. Third, the message could come from a professional counselor or physician, likely segueing into a more traditional means of doctor-patient communication.

As an alternative, or in conjunction with these responses from the device, an opportunity would exist for the wearer to take action in response to the messaging from the device. A symbolic action to “take control” of the situation would be simply switching the device from red to green, an outward sign of the patient’s commitment and coping skill. Monitoring could be tied to whether or not such an action occurred; if the device was not acted upon, cell phone and other email alerts could be triggered to the patient and other stakeholders.

Such a device could have broad use for all manner of behavioral problems, not just behavioral problems tied to a current medical problem. Robust federal incentives for employer-based wellness programs, including meaningful incentives to participating individuals, could make these high tech mood rings a popular engagement tool for EAP and wellness programs.

Friday, October 2, 2009

Health Exchanges: Reform Impact to "Ancillary" Health Services

I received a great set of questions on yesterday’s Wyden and Wellness posting:

"Regarding employees' purchase of government plans, what will happen to ancillary plans like Dental, Vision, and Mental? Many employers offer these, which are also very important from wellness viewpoints.  Many cases, insurance brokers even package EAP, wellness programs, newsletters, together with physical health plans. What will insurance brokers will do? Or will employers basically offer a government plan as just one of the option through brokers?  For example, most employers offer a few choices, e.g. BCBS, Aetna, Kaiser, etc. I can easily see they can add government plan on top of the list of offerings." 

The questions were intended to be simple, but unfortunately the answers are not. A comprehensive account of how Wyden’s original bill, Wyden’s amendment, the House bill, and the two senate bills would impact each of the “ancillary” health benefits is beyond the scope of this blog. I will provide just the highlights and some speculative conclusions on how proposed legislation will collide with the provision of ancillary health benefits.

I’ll answer in reverse order.

Yes, Wyden’s Free Choice Act would allow an employer to add access to a government-sponsored exchange alongside its traditional health plans. This assumes that by “government plan” you mean a private insurance plan purchased through a government-sponsored exchange. The technical mechanism by which an employer would grant employees access to a government-sponsored exchange would be to pay out the employer’s contribution to the employee in cash and then leave it to the employee to shop around on the exchange. In fact, the employer would be required to do this in certain circumstances.

The degree to which a broker would be involved in setting up the “cash out” process is questionable. If the Free Choice Act is adopted, the federal government will specify regulations detailed to guide the cash out process. The end result will probably be more like COBRA administration – highly automated and low touch.

More broadly speaking, what role will brokers play with regard to the procurement of ancillary healthcare services? Let’s assume that brokers exist today to help employers and individuals sort through the details of ancillary plans and other complexities. Exchanges will supposedly simplify those complexities through mandated disclosures and coverage standards, reducing the role that the broker plays. I say “supposedly” because the fine print on your bank and credit card statements are government-mandated disclosures that fall short of simplicity. If the broker’s traditional role is lessened, however, brokerage firms could redeploy themselves towards winning lucrative government “navigator” contracts, where government funding is directed towards helping disadvantaged groups use exchanges effectively.

One of the possible standards that will be required in order to list a medical policy on the exchange will be that the policy must include some form of ancillary coverage. The House bill (HR 3200), for example, requires that the medical carrier itself include dental coverage for children. This would require some significant reshuffling of responsibilities from ancillary dental plans to the medical plans. According to Delta Dental, 97 percent of employer-sponsored dental contracts are written separately from medical coverage. Delta Dental is not happy about any decrease in that percentage.

In the case of wellness programs, the main reform legislation bills provide a variety of incentives, and do not appear to require bundling.

  • Wyden’s original Healthy Americans Act would require exchange listed policies to include wellness programs and mental health parity.
  • The House bill would require development of a national strategy for wellness activities and mental health parity.
  •  The Senate HELP Committee bill would require health insurers to provide financial incentives to providers to promote wellness. It would also encourage employers to provide wellness programs by conducting targeted educational campaigns to raise awareness of the value of these programs and by increasing the allowable premium discount for employees who participate in these programs from 20 percent to 30 percent.
  • The Senate Finance Committee bill would provide grants to small businesses to establish comprehensive, evidence-based workplace wellness programs; it would also permit employers to offer employees rewards of up to 20% of the cost of coverage for participating in a wellness program.

My take-away is that wellness program will grow in the short term. As I posted yesterday, however, the separation of certain wellness programs from the rest of an employer’s benefit package could cause the efficacy of the programs to decrease.

Expanded mental health parity requirements signed into existence late last year, supported by Senator Obama, are taking effect January 1st 2010. These provisions had an exclusion for small business, but the HELP Committee bill makes full parity a requirement for any medical policy listed on an exchange. The ultimate compromise reform bill will probably also require full parity. Parity provisions don’t require that mental health coverage be included, however – just that any mental health coverage be similar in scope to traditional medical coverage.

Some have argued that extra taxes being levied on rich benefit plans, as planned in the Senate Finance Committee bill, would cause employers to drop ancillary coverage. I doubt that this prediction will come to fruition – the employer will likely be able to play with the numbers to keep ancillary plans included in mainstream health plans. Normally a broker would be making those calculations, but in the brave new world of health exchanges, the intent is to have it be simple enough for employer HR staff (no offense, HR people) to calculate.

Thursday, October 1, 2009

Wyden and Employee Wellness

In theory, Wyden’s Healthy Americans Act and Free Choice Act create an ideal blend of market-driven solutions from the right and mandates with subsidies from the left. There is inconsistency, however, in Wyden’s approach to wellness programs. Each of the major reform bills, including Wyden's, identifies wellness programs as a key cost containment strategy. Only the Healthy Americans Act and Free Choice Act, however, would allow employees to “cash out” of an employer-sponsored health plan in favor of a plan from a government run exchange. Allowing this kind of cash out may look like a great compromise, but it could undo much of the potential benefit from employer-sponsored wellness programs.

First, employee attrition to exchange plans decreases the population in the employer-sponsored plan. A smaller population in the employer-sponsored plan results in limiting the extent to which a wellness program can create productivity and premium savings for the employer. At a certain point, a paucity of participants in the program will make it difficult for the employer to justify the fixed costs of running the program. Moreover, if the government does a risk adjustment at the end of the year between those people who cashed out and those who stayed in the employer plan, it could wash out any savings from employer-run wellness programs.

Second, employee assistance program experts like Tom Bjornson and Asako Tsumagari believe that the social environment of the workplace is a deciding factor in the effectiveness of employer-sponsored wellness programs. If support for healthy behaviors does not coalesce from the “bottom up”, positive changes are likely to be short-lived. Employees cashing out of employer-sponsored health plans and wellness initiatives will no longer be contributing to the momentum of the employee social network, which would likely decrease the likelihood of the wellness initiatives’ success.

The other major reform bills currently under consideration do not contain these powerful disincentives to employer-sponsored wellness plans. The Healthy Americans Act had the foresight to mandate that wellness programs be included in any exchange listed medical policy, provide a tax deduction for employers offering wellness programs, and allow carriers to promote wellness programs through premium deductions. It is not clear, however, that these measures would preserve employer-sponsored wellness plans in the long term.

Monday, September 28, 2009

Consilience in Legal Protections for Health IP

Gregg Bloche, a Yale-educated doctor and lawyer, recently published a new article on “The Emergent Logic of Health Law”. He describes health law as an emergent system as follows:

Competing values and stakeholders, not grand designs, drive health law’s evolution. Reform-minded actors therefore should become opportunists. They should look for potential evolutionary pathways that launch from present-day institutional arrangements and incentives. And they should pursue legal and policy interventions that push our health system along these pathways, powered by stakeholders’ and legal decisionmakers’ interacting responses. The key here is to craft interventions that are “nonlinear” (in emergent systems argot)—interventions that achieve large, long-term impact through minimally disruptive short-term change.

In other words, the strategic reformer must focus efforts on areas of consilience between the status quo and efforts for change. Bloche’s systems-based explanation provides a compelling rationale, for example, to President Obama’s deference to Congressional leadership. Congressional impramateur makes sense from an emergent systems perspective because Congress is, for better or worse, the best proxy for the many interest groups concerned with health care reform. From an emergent systems perspective, then, deference to Congress lets those interest groups define terms as much as possible while retaining political capital to  intervene at critical junctures.

Bloche also has some micro-level suggestions for reformers who aren't Presidents or members of Congress. In this entry I’ll describe a particularly unique suggestion from Bloche on legal changes that could reform the system from the ground up, and also dish up some criticism where Bloche gets important facts wrong.

One of Bloche’s ideas for holding down costs in a politically savvy way is to find ways to disincent expensive procedures that don’t bring much benefit. Rather than denying end of life care, which despite its utilitarian merits strikes many as unpalatable, he proposes a strategy that will reduce the ongoing proliferation of “half way cures”. He defines “half way cures” as “marvels of engineering, electronics, and materials science, and of modest, often minimal medical benefit”. They are very expensive but minimally useful. To hold the cost down, then, Bloche proposes limiting the intellectual property protections available for these kinds of drugs, devices, and processes. He acknowledges that administrative challenges abound in trying to define “halfway cures”, but he does propose a useful starting point to be a determination of whether the treatment is based on a comprehensive grasp of the biological system. Penicillin, for example, was developed after understanding how to break down bacteria cell walls. His examples of treatments where our understanding of the biological system is less complete includes “drug-coated stents designed to keep atherosclerotic arteries open, high-technology life support, and last-ditch radiation and chemotherapy regimens meant mainly to sustain hope”. He also proposes using Medicare payments to make primary physician consultation and coordination time relatively better compensated than specialty “half way cures”. In time, this would likely result in decreased supply of the high cost minimal benefit technologies.

One emergent area of reform opportunities overlooked by Bloche is high deductible health plans. He states that “[Consumers have been reluctant to] appoint themselves as limit setters by signing up for lower-cost coverage that kicks in only after they and their families spend thousands of dollars on care out-of-pocket.” On the contrary, high deductible health plans have been the largest growth segment in the insurance marketplace. Moreover, the financial institutions that act as custodians to the health savings accounts (HSAs) coupled to high deductible health plans have been among the strongest investors in transparency and quality of care tools. The financial institutions seek to demonstrate value to the consumer by helping the consumer to make smart healthcare decisions. Banks have outperformed insurance companies on measures of trust (at least until recently), security, and availability. Online banking systems (see, e.g., Canopy Financial's suite as implemented by Sovereign Bank) now serve as a point of aggregation for all manner of health decision and quality tools for consumers. The current bills devote significant verbiage (see, e.g., provisions on "navigators") to setting up mechanisms for this kind of distribution of information and support to consumers. The Bacchus bill explicitly references HSA figures to set standards for coverage, perhaps taking a page from Bloche's "emergent systems" strategy suggestions. High deductible health plans coupled with HSAs may yet continue to form a point of consilience between the status quo and efforts for change.

Friday, August 14, 2009

Plasticity in Health Care Payments

For better or worse, most legislative attempts at health reform shift costs. The Medicare Improvement Act of 2003, George W. Bush’s landmark reform, made it more feasible to shift responsibility for payment to individuals through HSAs. The current reform legislation underway will likely swing the pendulum back towards employer and government responsibility for payment. The one certainty is that shifting payment dynamics will lead to opportunity for new payment mechanisms.

With HSAs, banks took off after the opportunity to issue cards that would capture a share of interchange revenue. Webster Financial Corporation, for example, paid $26 million for a small bank in a community of less than 4000 people, because it had a strong HSA line of business. United Healthcare founded a bank just to get in on the action. The card vendors, in return, also began to make health payments a specific focus. American Express announced that it would be the new leader in the market for card-driven health benefits administration, although after several years left the market.

While mobile payment mechanisms garner much attention, paying for healthcare with credit or debit cards is still the mainstream. Visa surveys indicate that up to 90% of patients would prefer to pay with plastic. Where can the card vendors go from here? Providing payment mechanisms designed specifically to solve some of the system’s problems: smoothing payments for patients (much like what is called “insurance” today), simplifying revenue-cycles for providers, and perhaps consolidating data on diagnosis and outcomes.

With increased employer responsibility for healthcare, expect employers to continue to be a point of aggregation for card-related payment services. Today, employers and employees miss out on $2 billion in tax exemptions available through qualified high deductible health plans (HDHPs). For employers, this breaks down to about $140 per employee per year in federal payroll taxes that could be saved. The opportunity for the exemption of income is missed because nearly half of people covered by HDHPs do not open an HSA, and many of the accounts opened are not fully funded. Card vendors could increase HSA utilization by automating account opening, contributions, and distributions -- making tangible the tax advantage.

Wednesday, August 5, 2009

Disease Management Thrives in Legislative Neglect

A sentiment of lack of change exists, now that legislators are on break. A couple ideas occur to me, examining the disease management industry, that make the legislative slowdown neutral or good in terms of its effect upon the healthcare system.

First, I’ll examine the progress of the disease management industry in the benign neglect of Congress and the Health and Human Services Administration. I’ll then provide an example of how legislation already signed into law this year contradicts core tenets of the Senate and House proposals.

Back in 2000, when HHS was deliberating on how to develop regulations for the HIPAA privacy rule, the agency commented that “[w]e are unable to find generally accepted definitions of the terms ‘disease management’”, and omitted the terms from the final regulation, opting instead for the catch-all category of “health care operations”. Nonetheless, according to BCG ( disease management organizations (DMOs) grew from $346 million in revenue in 2000 to $1.1 billion in 2005. By 2008, outsourced DMOs alone generated $2.3 billion in revenue. While Medicare did experiment with a disease management pilot, to great initial fanfare, the program’s design failed to monitor a control population, and therefore did little to empirically support disease management's claims.

It may be that slower, more incremental progress is better. Witness, for example, the provisions in the recent American Recovery and Reinvestment Act (better known as the Recovery Bill, or ARRA), which permits individuals to opt out of having their data used for “health care operations”. Specifically, if an individual pays cash, the care provider must offer the individual an opportunity to not have his or her data used for “health care operations” purposes. “Health care operations” includes informatics and disease management, so the ARRA cuts away the empirical data on which those programs run. Individuals paying out of pocket are the minority today, but they represent an important shift towards consumer driven healthcare, and are growing at an increasing rate. In just a few years, omitting these individuals from disease management databases could significantly skew the data. This doesn’t bode so well for the reform bills, for which better disease management is a key cost control strategy. (see, e.g., )

Monday, August 3, 2009

Opportunity Cost: $2 Billion

Employers and individuals miss out on $2 billion per year in HSA tax breaks because they miss an opportunity to predictably match HSA contributions to out-of-pocket health spending from non-HSA accounts. This disconnect between physical and financial health is not being addressed by either healthcare or financial institutions. If there is an opportunity to use health transaction data to help HSA-eligible employees consolidate data on out-of-pocket expenses from non-HSA accounts, it would be a great value to the employee group. The data consolidator need not actually move the money -- the financial institutions can handle that pretty easily based on a file feed, so long as the consolidator has the employees’ imprimatur.

Thursday, July 30, 2009

Big Changes Even in a Stripped-Down Bill

This evening there is much talk about the House bill (HR 3200) before the Energy and Commerce Committee being subject to compromise. While removing the public plan option and decreasing subsidies would remove key features of the bill, it is an overstatement to say that the revised bill no longer has the capacity to make healthcare more efficient.

For example, there are 4 mentions of “disease management” in HR 3200. Disease management is one of a handful of concepts that could make a significant difference in the efficiency of the system. See, e.g., BCG's predictions. Compare the prevalence of the term in HR3200 with the original HIPAA privacy rulemaking back in the year 2000, where HHS published comments for 65 FR 82462 that “we are unable to find generally accepted definitions of the terms ‘disease management’ and ‘disability management’”, and therefore omitted the terms. See the excerpt that follows:

Comment: Several commenters asked that disease management and disability management activities be explicitly included in the definition of health care operations. Many health plans asserted that they would not be able to provide disease management, wellness, and health promotion activities if the activity were solely captured in the rule's definition of “treatment.” They also expressed concern that “treatment” usually applies to an individual, not to a population, as is the practice for disease management.

Response: We were unable to find generally accepted definitions of the terms 'disease management' and 'disability management.' Rather than rely on this label, we include many of the functions often included in discussions of disease management in this definition or in the definition of treatment, and modify both definitions to address the commenters' concerns. For example, we have revised the definition of health care operations to include population-based activities related to improving health or reducing health care costs. This topic is discussed further in the comment responses regarding the definition of 'treatment,' below.

There is also a piece in the legislative history of 65 FR 82462 where "Commenters representing health plans were concerned that the “static” nature of the definition would stifle innovation and could not reflect the new functions that health plans may develop in the future that benefit consumers, improve quality, and reduce costs." Now, almost 10 years later, Congress is trying to legislate the innovation that was promised but never delivered.

Tuesday, July 28, 2009

Are tax increases and gov't control always Orwellian?

Just a quick bump to MediaVortex's comment last week on impact of the new health legislation to ERISA:

"A big battle right now in the Senate Finance Committee centers around the idea of "actuarial equivalence." My conversations with a couple of actuaries leaves me with the conclusion that "actuarial equivalence" will be the weasel words that enable the "health choices commissioner" (don't you love the Orwellian irony of that title?) to not only effectively kill consumer-directed care, but provide Congress with the loophole to add special interest benefits to the plan to garner votes. Over time, this will drive up the cost of a public plan rather than reduce it. This will of course be followed by tax increases and the eventual government control of 1/5 of our nation's economy."

A way to protect the public plan from interest group politics would be to create an semi-autonomous entity like the Fed to run the program. Of course the Fed is catching a lot of heat right now, with new demands for accountability.

Assuming we do get increased taxes and government control of 1/5 of the economy, is that such a bad thing? First, in the higher income brackets, does tax policy really need to avoid creating a disincentive for hard work? It may be that it would be better for families and society if people making more than $250,000 did have a disincentive to put in that 81st billable hour -- more progressive taxation could accomplish that.

Second, some economists show that government spending has a multiplier effect on GDP greater than private spending. On what else might those funds be spent? "Gas and toys from china? Once that money is spent it is out of our economy and no longer grows GDP. That decrease our GDP by a factor of 7 to 20 depending on what they are buying. Besides healthcare and housing what other expenditures keep more money in the US? Is a Chinese made big screen really a better purchase? That is where our discretionary spending is being spent, people are choosing to purchase excessive healthcare. If we eliminate that then they will purchase excessive electronics or eating out or other non essential items. Our HC spending is not resulting in people starving in the streets."

Monday, July 27, 2009

Mobile Devices and Context Sensitivity

Qualcomm recently pulled the plug on development of its leading mobile health device, but the sector seems poised to grow using a non-MVNO model. What better way to deploy context-sensitive information?

Context-sensitivity makes all the difference in the world when dealing with technical terms. “Cervical”, for example, means something much different coming from an OB/GYN than from a chiropractor. If a GPS-enabled mobile device knows where the individual lives, whether he takes the elevator or stairs, and what restaurants he visits, it can provide much more helpful information to the individual. When my iPhone asks me if it is okay to “use current location” to narrow searches, it is already a step in this direction. Moreover, additional medical device technology, such as LEDs that produce a spectrum that takes a radar-like reading of blood glucose, could be bolted on for multiple levels of context sensitivity.

Privacy questions abound. For starters, take the fact that 1 in 3 Americans is obese in some populations, and that obesity is an even greater health risk than smoking. For obese persons, then, the government could impose a higher sales tax on fatty foods. This is likely an unacceptable form of discrimination, but it is technologically possible, using the same methods that insurance carriers use for realtime repricing of medical services today. Carriers tie it to the health ID card, or a health spending debit card; but it could also be tied to a transaction-enabled mobile device as well. Call it "realtime repricing of health incentives". Clearly there would have to be some overall financial incentive, such as funds parked in a health savings account, to incent an individual to agree to such a program. Can existing cafeteria plan (IRC Sec 125) regulations be modified or interpreted to permit this?

Friday, July 24, 2009

New Technologies and Pay for Performance

One of the key beliefs of President Obama and his advisors is that health technologies can make a significant difference to the quality and cost of care. In a recent speech at the Heritage Foundation, Professor Richard Epstein of the University of Chicago challenged this notion, maintaining that adoption of technology by government seldom goes well. It was not clear if he would also maintain that the government seldom gives effective impetus to adoption of new technologies in the private sector. Lots of counterexamples exist there: the Interstate Highways system leading to big box retailing and Walmart; ARPANET leading to Google.

In any case, Epstein maintains that if a technology’s value exceeds its price, it will be adopted by the private sector without any help from the government. That may hold true in a perfect market, but the healthcare system is far from perfect.

Is there a concise way of understanding the features of the healthcare system that have made private-sector innovation unable to stem the tide of cost? Epstein would likely cite government interference, particularly the unique tax treatment of employer-provided healthcare.
In Super Crunchers, Ian Ayres makes the case the increasingly powerful databases and processing power can significantly change how industries operate, including the medical field. Experience, however, seems to validate Epstein’s position. So far, large deployments of evidence-based medicine and pay-for-performance systems appear far and few between. A few notable examples do exist: Medicare bundles payments to hospitals based on diagnosis, forcing hospitals to internalize some incentives for efficiencies; California has the Pay for Performance Program; The Leapfrog Group of Fortune 500 employers has pursued making data on medical cost and outcomes more widely available. While these groups may have laid the foundation, it appears that the economics of healthcare payments has not changed much. The California Pay for Performance coalition, founded in 2001 set the modest goal in 2006 of 10% of physician compensation being outcome-based by 2010.

Blame it on doctor resistance? In that case, it may be a first mover problem and therefore a perfect example of a place for government to get involved.

Hal Luft has said that carriers just don’t have the incentives. Large employers are self-insured, which minimizes the carrier’s skin in the game. Moreover, helping the doctors keep costs down and deliver good outcomes helps the other insurance companies, since most doctors participate in multiple carrier networks.

Is an Accountable Care Organization a better model? Kaiser says no true ACOs exist today, but organizations like Claremont Partners do perform the kinds of longitudinal analysis and intervention that we would expect to see from an ACO.

This blog entry and the questions raised will be refined and answered in the coming days.

Thursday, July 23, 2009

Reform Bill to Slow Consumer Driven Care

The financial institutions and advisors that administer health savings accounts (HSAs) have relied upon an exemption from ERISA to streamline deployment of HSA-based consumer driven plans. Ironically, it may be the demise of ERISA itself that causes the greatest regulatory burdens to these firms. ERISA lets employers with self-funded health plans avoid costly federal and state regulations on covered treatments, pricing, rate setting and so on. According to a recent article in the WSJ, roughly 75% of employer-based coverage is governed by ERISA’s “freedom of purchase” rules.

The House health bill would override ERISA’s exemption of self-funded plans. The “health choices commissioner” created by the bill has authority to determine what constitutes a plan that satisfies the individual/employer mandate for coverage. The current Administration’s ambition for regulatory agencies to play an expansive role suggests that unless expressly barred by law, the Commissioner will elect include HSA features in the scope of any such examination. From my experience trying to explain HSAs to federal regulatory agencies (IRS, OCC, NCUA), no leaf of the HSA program will be exempt from the examination. So long, streamlined deployment of HSA-based plans.

Wednesday, July 22, 2009

Reporting requirements for health insurance carriers

One small item in the Senate bill that may be foundational to longer-term improvements in the healthcare system is the requirement for reporting of cost data by carriers. This stands in contrast to the paucity of information that is available today.

I was preparing for a call to WellPoint dba Anthem / Blue Cross of California and wanted to pull down California-specific statistics. I found the Insurance Commissioners website easily enough, and the Company Profile section. Finding useful information as a consumer or employer is more difficult. The Company Information page for WellPoint states that their two lines of business are Disability and Life. "Life Insurance" is a defined term in the glossary, and but is not defined to include Health. Not exactly confidence-boulstering for the non-expert who knows just enough to know that WellPoint is in fact a health carrier. Financial reports are available, from which certain premium revenues and administrative expenses can be derived, but it is not for the faint of heart.

Section 2704 of the new legislation provides for reporting on:

‘‘(1) on reimbursement for clinical services provided to enrollees under such plan or coverage;
(2) for activities that improve health care quality; and
(3) on all other non-claims costs, including an explanation of the nature of such costs."

Having these three pieces of information would make comparison shopping much easier for consumers and employers. If there is simply a "first mover" problem with the carriers providing this information, then maybe having the federal government mandate that all the carriers use the same standard will bring value to the carriers as well. In banking we had quarterly call reports and even the credit unions have an equivalent quarterly public report. It was a great way to compare league tables, both inside the financial institution and for potential business partners of the financial institutions.

Tuesday, July 21, 2009

Process Interoperability in House and Senate Bills

Yesterday I was poking fun at the two dozen mandates for “cultural and linguistic appropriateness” in the House and Senate bills. Vince Kuraitis’ recent posting on interoperability made me want to delve more into this bit of legislative doublespeak. To better understand the legislators' intent and ability to transfer from policy to private sector initiatives, take a look at Vince’s summary of “process interoperability”:

"Process interoperability is an emerging concept that has been identified as a requirement for successful system implementation into actual work settings. It was identified during the project by its inclusion in academic papers, mainly from Europe, and by its being highlighted by an Institute of Medicine (IOM) report issued in July 2005 which identified this social or workflow engineering as key to improving safety and quality in health care settings, and for improving benefits realization. It deals primarily with methods for the optimal integration of computer systems into actual work settings and includes the following:
Explicit user role specification
Useful, friendly, and efficient human-machine interface
Data presentation/flow supports work setting
Engineered work design
Explicit user role specification
Proven effectiveness in actual use"

Perhaps “cultural and linguistically appropriateness” was our legislators’ best attempt at mandating “process interoperability”. If they minded their own mandate (i.e., wanted people to understand and act upon it) they might just say: we need to make the healthcare system like an iPod. The iPod's linguistic appropriateness is that very little verbiage is required when listening to music. Perhaps we can design a healthcare system with similar elegance.

The iPod metaphor is a cliché, but clichés exist for a reason. This one regresses laterally towards absurdity when we think that Steve Jobs was looking at Porsches during his BFO, so let me get into the analysis to bridge the gap to healthcare:

1. It is possible to look at the healthcare system as a series of payment transactions (intellectual debt owed to Hal Luft and Metavante)
2. Payment systems require scale
3. Scale requires technology
4. Therefore we can see the healthcare system as a technology system.

While less scary than cancer (except maybe for politicians), designing the intermediate steps of accessing, organizing, sharing, and distributing payment for healthcare is not trivial. Successfully piloting innovative payment strategies for physicians and care providers that foster disease prevention and care coordination will require active participation from many players in the private sector. The threat, and the call to action, is that they won’t use it if they don’t like it. That is the “process interoperability” requirement in a nutshell.

In line with Vince’s comment, processing power and cheap telecommunications make it easy for technology implementers to provide lots of data and lots of configurability; winners focus on culling the most useful information from data and making configuration choices on the consumer’s behalf. Likewise, important tradeoffs are to be made between interoperability and security.

Given that the private sector runs much of the healthcare payments infrastructure regardless of who foots the bill, I wish that legislation was more “process interoperable” with the mindset of those who run the back office pipes. It does give me hope when I see process interoperability as the mission statement of the micro-data crunchers at firms like Acumen LLC. They philosophize with a sledgehammer: “To us, the most important aspect of such systems is not the database, but rather the interfaces we design that make data meaningful to our clients.”

Monday, July 20, 2009

Gateways, Exchanges, and Navigators

Looking at last week’s House and Senate bills, I saw a couple things that might be interesting to the wide class of firms that provides online health benefits procurement (e.g., BenefitFocus, eHealth, etc.,.) The bills start to describe what the Gateway/Exchange contemplated by Congress (and WellPoint) looks like.

In both the House (“Exchange”) and Senate (“Gateway”) versions, the entity is set up by the government. It is supposed to play a non-exclusive role, but I think the question haunting the whole insurance industry and vendor community is the longer-term viability of other distribution channels, especially if a public option is at play.

The Senate bill is a little more descriptive than the House bill, and provides that: “The Gateway will establish tools to enable consumers to obtain coverage, establish open enrollment periods, and assist consumers in the purchase of long term services and supports”. These are clearly some of the things that need doing, but ultimately the Gateway concept is a quasi-government entity so probably will not attract much private capital.

The Senate bill also describes the role of a “Navigator”, which is in the pleasant position of receiving government contracts but ostensibly could be a private firm:

"(a) The Secretary shall award grants to establishing States to enable the Gateway or Gateways in such States to enter into agreements with private and public entities under which such entities will serve as navigators in accordance with this section.
(b) ELIGIBILITY.—(1) IN GENERAL.—To be eligible to enter into an agreement under subsection (a), an entity shall demonstrate that the entity has existing relationships with, or could readily establish relationships with, employers and employees, and self-employed individuals, likely to be eligible to participate in the program under this title. …
(c) DUTIES.—An entity that serves as a navigator under an agreement under subsection (a) shall— (1) conduct public education activities to raise awareness of the program under this title (2) distribute fair and impartial information concerning enrollment in an[d] the availability of credits for qualified health plans; (3) assist with enrollment in a qualified health plan; and (4) provide information in a manner determined by the Secretary to be culturally and linguistically appropriate to the needs of the population served by the Gateway.”

I am still a bit more interested in a model that gets into the flow of cost and quality data than one that is "linguistically appropriate"… I’ll keep you posted.

Friday, July 17, 2009

New Business Models for Google in McAllen, TX

Earlier this week I travelled to meet with Hal Luft, PhD, a Harvard-educated health economist and Director of the Palo Alto Medical Foundation Research Institute.

Hal’s recent book, Total Cure, reads to technology implementers like workflow documentation from the future, so I brought a variety of questions about what new business models might exist in the post-reform world. My favorite idea that he came up with was Google as a health transaction processor.

Hal pointed out that Google has done well by providing consumers with applications they want and then charging businesses for information generated by those applications. With all those servers guaranteeing the classic high availability Google search function, Google looks for ways to use spare processing power in down times. One possibility would be free insurance claims processing. Google could then anonymize and crunch the claims data, connecting diagnosis codes, treatment codes, and subsequent diagnosis codes in order to determine low cost and high quality outcomes. If I were an insurance company with covered lives in McAllen, Texas, which recently gained some notoriety as a region with unusually high medical costs, I would want to know which doctors were the most efficient, and I would pay for the information. The gain to society would be that information about the practices of the efficient doctors would be more widely disseminated. Fits well with Google’s model of “organize the world's information and make it universally accessible and useful”.

Monday, July 13, 2009

WSJ Article by Epstein on Malpractice Reform

On a recent episode of NPR’s Forum, an expert guest commented that medical malpractice reform tends to be a red herring espoused by those who don’t want to change the broader dynamics of the healthcare system.
Nonetheless, it does deserve some attention. I’ll take this opportunity to take on Richard Epstein’s view of medical malpractice reform in his recent WSJ editorial (also on the University of Chicago Law School blog).

Epstein’s view and those of the responses commented on the WSJ and U of C site seem to take diametrically opposed views. Epstein favors allowing providers to contract out of civil jury trials; the commentators find this inequitable to the injured patient population. I take the view that a Pareto-efficient compromise position exists.

Administrative costs of the malpractice system (not including defensive practice of medicine) exceed total compensation to victims. (T.A. Brennan and M.M. Mello, "Patient Safety and Medical Malpractice: A Case Study," Annals of Internal Medicine 139 (2003): 267; D.M. Studdert et al., "Claims, Errors, and Compensation Payments in Medical Malpractice Litigation," New England Journal of Medicine 354 (2006): 2024.)

Abbreviating the trial process to focus on the question of whether an avoidable compensable event had occurred would be fairer to patients and physicians. An avoidable compensable event (ACE) is an injury that 1) is caused by treatment (or omission of treatment) and 2) should rarely occur when care is provided according to best practice. (H. Luft (2008) Total Cure, Cambridge: Harvard University Press). This standard would be fairer to the population of injured patients as a whole, which is much larger than those filing lawsuits under today's system. (Id). While compensation to patients as an aggregate class could be increased using the savings from administrative costs forgone, the injured patients would forgo damages for pain and suffering.

As detailed by Luft (2008), ceasing to award legal damages for pain and suffering, in addition to making a finding of negligence unnecessary, would make care providers less likely to practice defensive medicine. At the same time, punitive damages should be applied to care providers who demonstrate a pattern of failing to meet the applicable standard of care. (Id). This would require, however, removing the doctrine whereby hospitals and other care delivery teams can claim that they have no control over medical staffs. (Luft, 2008;

Friday, July 10, 2009

Doing brain surgery with boxing gloves on

Yesterday we had a comment on the site that “unless the consumers incurring the cost have some direct stake in paying the bill, any cost controls on the health care system via government, much like the insurance companies, are the equivalent of doing brain surgery with boxing gloves on”

Could it be that there is a way to organize the payment system so that doctors also have a stake in keeping down costs? In some situations consumers (e.g., rural/uneducated/scared) are not well-equipped to individually bargain down fees for services.

A key element of the Baucus plan is bundling Medicare payments based on a medical condition rather than for specific services (Transforming the Health Care Delivery System, Senate Finance Committee, 4/29/09, at 14). The Senate Finance Committee review found that in treatment of medical episodes paid for by Medicaid, there was “a lack of accountability of providers for all care provided during the episode”, and proposed bundling to align financial incentives for care providers.

While Medicare (or a public plan) bears the risk that a particular medical condition occurs, the care provider could be made to bear the “production risk” of the medical services creating a good outcome. To isolate the quality of a providers’ care, however, variance must be controlled. Only so much can be controlled through diagnosis codes, even with variable severity built in. Recouping the cost for care for an extraordinarily sick patient within a category could take years of treating more average patients within the category. Today Medicare has an outlier reimbursement program, but the private sector entity would likely have better incentives to monitor payments under the program.

To the other point in yesterday’s comment, yes government bureaucracies often perform badly. At one point, Medicare was making “outlier reimbursement” payments to Tenet hospitals amounting to 17% of Tenet’s Medicare payments, whereas the national average was 5%. ( ). Are there institutions in the private sector other than insurance companies that might do a better job?

Thursday, July 9, 2009

CDH and HSA Founder Endorses Universal Coverage

As a new entry, this blog looks back and looks forward. We quickly (by Congressional standards) approach the eve of the most important healthcare legislation since the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The 2003 legislation hatched a cottage industry centered on health savings accounts (HSAs). To what extent will reform in 2009 cause a reallocation of capital and skills from the consumer driven healthcare industry?

Regina Herzlinger, who is widely credited with the creation of HSAs and consumer driven healthcare, recently opined in the National Review that universal care is imminent. According to the article, the key task for CDH firms is to ensure that a strong degree of choice remains for consumers.

For Herzlinger, HSAs form just one plank in CDH. Professor Herzlinger’s take on HSAs and CDH was summarized in December by Business Week:
“Herzlinger does not want a regulation-free market. Nor does she think health savings accounts, favored by many Republicans, are the best solution. These plans, which combine high deductibles with tax exemptions for health-care dollars, have been adopted by only about 6% of Americans, and she figures that's about right. ‘Consumers should have hundreds of coverage options.’”

If HSAs are appropriate for 6% of the population, what health financing options will provide meaningful choices to the other 94%?