Healthcare Reform that Actually Reforms Something

Graphic source: Catalyst for Payment Reform

Virginia appears to be doing a better-than-average job, compared to other states, in shifting its health care system from a fee-for-service system, widely implicated in healthcare inflation, to a value-oriented system.

The logic is simple: If you’re a hospital, physician or other health provider, and if you’re reimbursed for the number of services you provide, you have an incentive to provide more services regardless of the effect on outcomes A value-oriented approach rewards the quality of the service. Reports The Virginia Mercury:

A new scorecard by Catalyst for Payment Reform, the Virginia Center for Heath Innovation and the Virginia Association of Health Plans shows that in 2016, 67.3 percent of payments made to doctors and other providers by commercial insurers in the state were value-oriented, meaning they had some payment component that rewarded doctors for the quality of care they provided.

Meanwhile, 36.6 percent of the total payments that the state’s Medicaid program made in 2016 through the insurers, or managed care organizations, that it contracts with were tied to value. …

Roughly, Virginia’s commercial insurers did about 20 percent better in making the shift to value-based payments than the national market, while Medicaid did about 4 percent better.

Bacon’s bottom line:

 Politicians in Virginia and the rest of the United States have been obsessed for years with who pays for health care, creating a zero-sum game in which every winner entails a loser. Politicos have paid far less attention to creating win-win scenarios through improved quality, productivity and innovation. Ideally, value-oriented payments move the emphasis in healthcare from inputs to outcomes.

The move to a value-oriented model represents a fundamental change and is a Very Big Deal. I have not had time, however, to decipher the public policy implications. Other than embrace the model for Medicaid, which the Commonwealth appears to be doing already, I’m not sure what lawmakers can do to accelerate the shift. Value-oriented healthcare may not be as easy to explain as “Medicare for All” or “Repeal Obamacare,” but voters should perk up and pay close attention.

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12 responses to “Healthcare Reform that Actually Reforms Something”

  1. Healthcare costs are standing on the jugular of the U.S. (and Virginia) economy, and higher education costs (student loan debt) is kicking it in the gut. I would love to see the Virginia legislature do its job and take a look at what it can address these issues at its level. Sure, Federal policy is a big factor (e.g. all you can eat student loans), but one of the core values of Federalism is the ability to experiment with new approaches at a state or local level.

  2. LarrytheG Avatar

    There’s some irony here. Some of the biggest strides are being made with MedicAid and Government moving that population to managed care and away from fee-for-service. AND it’s working. It’s bringing down costs as well as emergency room admissions and now it’s being expanded to the Medicaid Expansion.

    If it works – it will demonstrate that what the 35 other countries do for health care – does work and will work in the US contrary to the belief that the unfettered free market will bring down costs.

    The day may well be close when people on MedicAid get less expensive care and have equal or better life expectancies – like the European and Asian counterparts govt-run systems.

    This would have never happened if we did not have MedicAid and were motivated to bring down costs by NOT doing what traditional employer-provided insurance does – which is more often than not – fee-for-service.

  3. This is the big frontier for entitlement cost control; the single biggest area for savings and potential improvement! Yet your post on this only generates a couple of comments and we move on. I have no brilliant answers either. But why isn’t this the subject of intense study by all those government agencies and think tanks and private foundations out there; why isn’t there intense public debate over these issues like there was around the time the ACA was passed? I think it’s because so much that’s fundamental about our health care goals and current system is up in the air.

    We’ve been saying it for years: The Republicans have had all this time to formulate a better approach than the ACA and they wasted their time on “repeal and replace” without revealing what “replace” means other than “back to the 1980s.” In fact the dominant impression left by our fine legislators is “we don’t understand what we’ve got, much less, how to improve it.” So now, is it surprising that nobody has a sense of how to approach, or which way to go to fix, the poor incentives to doctors under Medicare and Medicaid?

    1. I oppose Obamacare and “Medicare for all.” But I have to say, I have been totally underwhelmed by the Republican alternatives. They offer no solutions beyond HSAs, which I like but fail to address the underlying causes of healthcare inflation.

      The most frustrating thing is that there are market-based solutions! Republicans seem to be totally unaware of them.

      1. I agree the Republicans have nothing. And it appears even with Republicans a replacement will need to address pre-existing conditions. I actually supported Obamacare, not because I thought it was great, but because I thought it was a step in another direction that might ultimately force movement on costs, which will ultimately choke the economy. Healthcare in the U.S. is a Gordian knot and no one knows where to start. I though Obamacare might at least force a start, but the Republicans want to repeal it rather than evolve it.

        Larry always comments that the belief in unfettered free markets is what has caused the problems we have. I have always found that puzzling in a sense because the current system is so far from free market, and because the government is AWOL on playing a role in making the market more efficient. In fact, Government has been captured by special interest groups (AMA, Big Pharma, Healthcare Systems, etc.) and structures the system to favor them. It allows abuse of tax law and high levels of concentration. It forbids price negotiation in certain sectors. It maintains a central role in the more efficient financial sector regulating banks and processing financial settlements, but does not contemplate it in healthcare where the network of insurance payments is grossly inefficient.

        Anyway, there are many more tactical ways that the system could be improved short of the big structural change that would be so politically difficult. We don’t seem to move on most of them.

  4. Just to expand a bit. In the U.S., the government has played a role in restricting supply (e.g. Doctors), alternatives (Nurse Practitioners), price negotiations (drugs), and tolerating price fixing (drugs), and anti-competitive behavior (hospital systems), and has avoided major tort reform. All of these could make a significant difference and don’t require the elusive big system change. They should be business as usual for a government doing its job.

    It takes a bunch of things wrong to get a system as inefficient as our healthcare system. Waiting for the big system change may be like Waiting for Godot. It ain’t coming. I’d love to see the legislature take a systematic look at what can be done on some of the issues above.

    1. Izzo, you are absolutely right about how special interests have captured the regulatory system to restrict supply, transparency, and private negotiations. That’s one reason why it’s naive to suggest that “Medicare for all” or any other single-payer system can do much to dent cost increases. The system is corrupt. The special interests have so much at stake they will stop at nothing to capture any regulatory system the “reformers” try to create.

      The capture of our health care system by special interests also explains why comparisons with other countries is largely useless. We couldn’t emulate the health care systems of Denmark or Sweden if we tried.

    2. Agreed. But “single-payer” is as the name implies a healthcare payment option, not a healthcare cost-control mechanism, so you and Izzo are talking apples and oranges here. Both aspects of the current system are flawed and we need to reform both of them, but most of the Obamacare repeal/replace/reform discussion thus far has been about the payment side — about what’s available in a given jurisdiction through the Exchanges and insurance subsidy cut-offs and tax penalties and the consequences to everyone else in the pool of offering skimpy policies to the relatively healthy. We still haven’t addressed the cost side — about how the current system does little to deter (indeed encourages in some instances) healthcare cost increases by hospitals and doctors and big pharma and other providers of healthcare to those insured. And we can’t address the cost of healthcare unless we also address the standard of care to be provided under that standard insurance: what is it and who decides it?

      Concierge medicine is one way for individuals who can afford it to bypass the dysfunction and stay abreast of the latest advances and best practices, but that by its very nature doesn’t deal with public health — the cost to the economy and to taxpayers of disease and disability that isn’t prevented but could have been — let alone the safety-net and moral obligations there.

      I’m not confident the Democrats are any closer to offering structural healthcare cost-control improvements than the Republicans have been. The “single-payer” debate is irrelevant to fixing costs.

      1. TMT, well said.

        Acbar, I think Jim and I were in agreement with you. We were talking about the perception that a change in the payment side would magically fix everything, when it would not directly resolve cost issues.

  5. Jane Twitmyer Avatar
    Jane Twitmyer

    “You can wiggle and jiggle the insurance based coverage we have for health care all you want but it really won’t change until we change medicine and the only Drs doing that right now are proponents of “Functional Medicine.”

    From the Institute of Functional Medicine …. “The Functional Medicine model is an individualized, patient-centered, science-based approach that empowers patients and practitioners to work together to address the underlying causes of disease and promote optimal wellness. It requires a detailed understanding of each patient’s genetic, biochemical, and lifestyle factors and leverages that data to direct personalized treatment plans that lead to improved patient outcomes.”

    “By addressing root cause, rather than symptoms, practitioners become oriented to identifying the complexity of disease. They may find one condition has many different causes and, likewise, one cause may result in many different conditions. As a result, Functional Medicine treatment targets the specific manifestations of disease in each individual.”

    “By changing the disease-centered focus of medical practice to this patient-centered approach, our physicians are able to support the healing process by viewing health and illness as part of a cycle in which all components of the human biological system interact dynamically with the environment. This process helps to seek and identify genetic, lifestyle, and environmental factors that may shift a person’s health from illness to well-being.”

    This approach not only has good results for the patient, it will cost less. They are even setting up an insurance system for patients. Costs associated with conditions like diabetes, arthritis, heart disease and obesity account for more than 80% of total healthcare spending in the United States. Chronic disease affects one in two Americans. This is why we spend the most with the worst results. Disease manabement! Run by Big Pharma. Diabetes treatments are the most illustrative. Cures for type 2 have been demonstrated for 2 decades.

    The leader … Cleveland Clinic and the Institute for Functional Medicine (IFM), led by Mark Hyman, MD, Chairman of IFM, founder of The UltraWellness Center, and New York Times best-selling author. Check it out.

    1. I’ve enrolled in a concierge medicine practice with the goal of practicing precisely this philosophy. It will cost a fair amount of money out-of-pocket, so not everybody can afford it. But I’m going to do my damnedest to get my glucose and blood pressure numbers into a healthy range. My doc will drill into my personal genetics and do a deep-dive in my blood chemistry. (Supposedly, he looks at my gut biome, too.) Then I’ll get a nutritional, exercise, and lifestyle regimen designed for my specific genome and blood chemistry.

      We’ll see how it works. I’ll report back to Bacon’s Rebellion from time to time.

  6. TooManyTaxes Avatar

    Why is anyone surprised. Medicine, from hospitals to pharma to insurance, is crony capitalism. Reform comes only after the vested interests make sure their cut is protected.

    I’m actually surprised that Trump has been able to revise the rules for Medicare drug reimbursement by linking prices to those paid in other developed countries. This would reverse the policy where the U.S. funded all of costs of research and drug failures. Until now, both Parties have kissed the ___ of Big Pharma. Real reform would have done this years ago. If you sell Drug ABC in Europe at $100, don’t expect to sell it at $500 in the United States.

    Reform means some stakeholders who are winners lose their protection. PAs and nurse practitioners start handling things only MDs and DOs were doing. All the elected officials are drooling at the idea of INOVA getting into personalized medicine so they close their eyes to INOVA’s market share in NoVA. The plantiffs’ bar continues to get malpractice cases that engender many unneeded tests and procedures when a no-fault system (like Virginia has for birth defects) would allow reductions in health care costs.

    Until this nation declares war on crony capitalism, we won’t see real health care reform. Meanwhile Larry and his friends will increase expenses by giving away more care under the existing system.

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