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.

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."

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?

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.

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.

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.

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.”