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?


  1. I don't think that an institution is going to solve the problem as effectively as a balance of regulations to make sure that everyone has access, and market forces/competition to hold down costs. But it has to be real competition; a public plan might work if it has to negotiate provider rates like everyone else, rather than pushing down to the providers what they will pay as with Medicare. Unfortunately, there is scant, if any evidence that any government plans could do so efficiently or effectively. See Maine or Massachusetts for examples.

    Additionally, there is not a "turn on the lightswitch" solution. Getting people more educated about healthcare and the healthcare system must be a big part of any effort to drive down the costs of healthcare. By getting people to take preventive measures and making available care alternatives to the emergency room, incredible amounts of waste could be cut out. Interestingly, to my knowledge there are no dollars set aside for health education in any of the reforms under debate.

    One possibility for adding efficiencies might be a contingent payment system for providers which bonused them for achieving better results for less cost, and providers were forced to compete for those bonus dollars, then the same forces that promote improvements and efficiency in most other markets could be brought to bear in the medical profession. Unfortunately one runs into the problem of providers refusing patients who would screw up their statistics if based on things like mortality. But there are things like hospital acquired infections, injuries from falls, etc. (completely unnecessary medical costs that must be paid regardless of the fact that the problem was caused by the provider) that could be used to measure those provider types. Of course that requires some institutional payment system, be it the government or insurance companies.

  2. Bundling completely misses the point. The point of bundling is to reduce payments made to hospitals, plain and simple. Hospitals are already shutting down due to insolvency. Reducing their payments is not a solution to anything unless your goal is more hospitals closing.

    A larger problem is the amount of work that hospitals and physicians are forced to do both socio-ethically, and leagally on near terminal patients.

    An overwhelming amount of funds are used in the last few days of life. Most critical care specialist can call the point of no return days, sometimes weeks before death. Yet they are still bound to waste countless transfusions, cardiac monitoring, MRIs, and ICU beds to keep up appearances and to soothe family members.

    If any beaurocrat really wants to help health care, give the critical care specialists the power, and safety to do what they know is best; and stop trying to figure out ever more complex ways of stealing funds from hospital.

  3. Well this is good info for me. Thanks for sharing this!