Tag: Medicare

Who to Blame for Health Costs: The Poisoned Chalice of “Moral Hazard”

Feb 8, 2024

By JEFF GOLDSMITH

How the Search for Perfect Markets has Damaged Health Policy

Sometimes ideas in healthcare are so powerful that they haunt us for generations even though their link to the real world we all live in is tenuous. The idea of “moral hazard” is one of these ideas. In 1963, future Nobel Laureate economist Kenneth Arrow wrote an influential essay about the applicability of market principles to medicine entitled “Uncertainty and the Welfare Economics of Medical Care”.

One problem Arrow mentioned in this essay was “moral hazard”- the enhancement of demand for something people use to buy for themselves that is financed through third party insurance. Arrow described two varieties of moral hazard: the patient version, where insurance lowers the final cost and inhibitions, raising the demand for a product, and the physician version–what happens when insurance pays for something the physician controls by virtue of a steep asymmetry of knowledge between them and the patient and more care is provided than actually needed. The physician-patient relationship is “ground zero” in the health system.

Moral hazard was only one of several factors Arrow felt would made it difficult to apply rational economic principles to medicine. The highly variable and uniquely threatening character of illness was a more important factor, as was the limited scope of market forces, because government provision of care for large numbers of poor folk was required.

One key to the durability of Arrow’s thesis was timing: it was published just two years before the enactment of Medicare and Medicaid in 1965, which dramatically expanded the government’s role in financing healthcare for the elderly and the categorically needy. In 1960, US health spending was just 5% of GDP, and a remarkable 48% of health spending was out of pocket by individual patients.

After 1966, when the laws were enacted, health spending took off like the proverbial scalded dog. For the next seven years, Medicare spending rose nearly 29% per year and explosive growth in health spending rose to the top of the federal policy stack. By 2003, health spending had reached 15% of GDP! Arrow’s moral hazard thesis quickly morphed into a “blame the patient” narrative that became a central tenet of an emerging field of health economics, as well as in the conservative critique of the US health cost problem.

Fuel was added to the fire by Joseph Newhouse’s RAND Health Insurance Experiment in the 1980s, which found that patients that bore a significant portion of the cost of care used less care and were apparently no sicker at the end of the eight-year study period. An important and widely ignored coda to the RAND study was that patients with higher cost shares were incapable of distinguishing between useful and useless medical care, and thus stinted on life-saving medications that diminished their longer term health prospects. A substantial body of consumer research has since demonstrated that patients are in fact terrible at making “rational” economic choices regarding their health benefits.

The RAND study provided justification for ending so-called first dollar health coverage and, later, high-deductible health plans. Today more than half of all Americans have high deductible health coverage. Not surprisingly, half of all Americans also report foregoing care because they do not have the money to pay their share of the cost!

However, a different moral hazard narrative took hold in liberal/progressive circles, which blamed the physician, rather than the patient, for the health cost crisis.

Rube Goldberg Would Be Proud

Oct 31, 2023

By KIM BELLARD

Larry Levitt and Drew Altman have an op-ed in JAMA Network with the can’t-argue-with-that title Complexity in the US Health Care System Is the Enemy of Access and Affordability. It draws on a June 2023 Kaiser Family Foundation survey about consumer experiences with their health insurance. Long stories short: although – surprisingly – over 80% of insured adults rate their health insurance as “good” or “excellent,” most admit they have difficulty both understanding and using it. And the people in fair or poor health, who presumably use health care more, have more problems.

Health insurance is the target in this case, and it is a fair target, but I’d argue that you could pick almost any part of the healthcare system with similar results. Our healthcare system is perfect example of a Rube Goldberg machine, which Merriam Webster defines as “accomplishing by complex means what seemingly could be done simply.”

Boy howdy.

Health insurance is many people’s favorite villain, one that many would like to do without (especially doctors), but let’s not stop there. Healthcare is full of third parties/intermediaries/middlemen, which have led to the Rube Goldberg structure.

CMS doesn’t pay any Medicare claims itself; it hires third parties – Medicare Administrative Contactors (formerly known as intermediaries and carriers). So do employers who are self-insured (which is the vast majority of private health insurance), hiring third party administrators (who may sometimes also be health insurers) to do network management, claims payment, eligibility and billing, and other tasks.

Even insurers or third party administrators may subcontract to other third parties for things like provider credentialing, utilization review, or care management (in its many forms). Take, for example, the universally reviled PBMs (pharmacy benefit managers), who have carved out a big niche providing services between payors, pharmacies, and drug companies while raising increasing questions about their actual value.

Physician practices have long outsourced billing services. Hospitals and doctors didn’t develop their own electronic medical records; they contracted with companies like Epic or Cerner. Health care entities had trouble sharing data, so along came H.I.E.s – health information exchanges – to help move some of that data (and HIEs are now transitioning to QHINs – Qualified Health Information Networks, due to TEFCA).

And now we’re seeing a veritable Cambrian explosion of digital health companies, each thinking it can take some part of the health care system, put it online, and perhaps make some part of the healthcare experience a little less bad. Or, viewed from another perspective, add even more complexity to the Rube Goldberg machine.

On a recent THCB Gang podcast, we discussed HIEs. I agreed that HIEs had been developed for a good reason, and had done good work, but in this supposed era of interoperability they should be trying to put themselves out of business.

HIEs identified a pain point and found a way to make it a little less painful. Not to fix it, just to make it less bad. The healthcare system is replete with intermediaries that have workarounds which allow our healthcare system to lumber along. But once in place, they stay in place. Healthcare doesn’t do sunsetting well.

Unlike a true Rube Goldberg machine, though, there is no real design for our healthcare system. It’s more like evolution, where there are no style points, no efficiency goals, just credit for survival. Sure, sometimes you get a cat through evolution, but other times you get a naked mole rat or a hagfish. Healthcare has a lot more hagfish than cats.

I’m impressed with the creativity of many of these workarounds, but I’m awfully tired of needing them. I’m awfully tired of accepting that complexity is inherent in our healthcare system.

The Eight-Year Journey to Accountable Care

Nov 6, 2012• 1

By Justin Barnes

Now that the healthcare industry can work with clarity on care coordination strategies and programs, a new expansion of ACO models, trends in patient behavior and the companion issue of provider scope of practice have quickly emerged as critically-relevant spotlights. Historical perspective helps.

Simply put, even with the political tumult this fall, there is strong bipartisan support for aligning payment and care delivery models with improving quality to create a smarter and sustainable healthcare system, backed by historical precedent.

For me and my colleagues in the trenches of pursuing fiscally sound care delivery nearly a decade ago, it is well remembered that the origins of accountable care reside within a 2004 HHS document entitled “The Decade of Health Information Technology: Delivering Consumer-centric and Information-rich Health Care.” This “Framework for Strategic Action” (as it is also known) was delivered to then-HHS Secretary and GOP-appointee Tommy Thompson. And it was delivered by the nation’s first National Coordinator for Health Information Technology, Dr. David Brailer.

The document’s goals of introducing health IT solutions to clinical practices, electronically connecting clinicians, using “information tools” to personalize care and advance population health reporting followed an executive order calling for widespread adoption of interoperable EHRs within 10 years.

State of the EHR Nation

Nov 6, 2012

By JOHN HALAMKA, MD

In a time of EHR naysayers, mean-spirited election year politics, and press misinterpretation (ONC and CMS do not intend to relax patient engagement provisions), it’s important that we all send a unified message about our progress on the national priorities we’ve developed by consensus.

1. Query-based exchange – every country in the world that I’ve advised (Japan, China, New Zealand, Scotland/UK, Norway, Sweden, Canada, and Singapore) has started with push-based exchange,replacing paper and fax machines with standards-based technology and policy. Once “push” is done and builds confidence with stakeholders, “pull” or query-response exchange is the obvious next step. Although there are gaps to be filled, we can and should make progress on this next phase of exchange. The naysayers need to realize that there is a process for advancing interoperability and we’ll all working as fast as we can. Query-based exchange will be built on top of the foundation created by Meaningful Use Stage 1 and 2.

2. Billing – although several reports have linked EHRs to billing fraud/abuse and the recent OIG survey seeks to explore the connection between EHR implementation and increased reimbursement, the real issue is that EHRs, when implemented properly, can enhance clinical documentation. The work of the next two years as we prepare for ICD-10 is to embrace emerging natural language processing technologies and structured data entry to create highly reproducible/auditable clinical documentation that supports the billing process. Meaningful Use Stage 1 and 2 have added content and vocabulary standards that will ensure future documentation is much more codified.

3. Safety – some have argued that electronic health records introduce new errors and safety concerns. Although it is true that bad software implemented badly can cause harm, the vast majority of certified EHR technology enhances workflow and reduces error. Meaningful Use Stage 1 and 2 enhance medication accuracy and create a foundation for improved decision support. The HealtheDecisions initiative will bring us guidelines/protocols that add substantial safety to today’s EHRs.
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Kill the Codes

Sep 23, 2012• 22

By Dr. Wes

Oh, that clever Center for Public Integrity. Look what they’ve gone and done now! My, oh my. According to the article, doctors are much of the the problem, billing “billions” of Medicare upcharges according to the center.

But what if the medical coding game itself is flawed? Stop for a moment and imagine what it would look like if lawyers billed like doctors. Suddenly, we see how bizarre the world of government billing codes and chart-completion mandates has become.

Not long ago I asked readers what my time is worth on a per-hour basis. Collectively and independently, they settled on a number of about $500/hr (see the comments). Now look for a moment at what Medicare pays, even at its highest level of billing for a physician’s time for evlauation and management of a medical problem: for 40 minutes of a physician’s time, it’s $140 (or $210/hr) before taxes. Again, we see another disconnect as to how doctors are valued in our current system.

Doctors are working long hours to collect these fairly low fees from Medicare while jumping more hoops than ever to do so. They have become pseudo-experts at the coding game, trying to get as much money for their extra efforts as legally possible. But these fees paid by Medicare do not cover payments for time spent on phone calls, e-mails, and working insurance denials. These services are still considered by our system as gratis. To partially counteract this coding problem, doctors realized (and the government insisted) that doctors use electronic medical records.

But when independent doctors set out to implement these records they quickly discovered that the expense and long-term maintenance costs of local office-based EMRs could not compete with more sophisticated systems already in use by their neighboring large health care systems. Because of ever-increasing cost-of-living and overhead costs, not to mention the threats of large fee cuts, doctors have migrated to large health systems faster than ever. With the fancier electronic record at those systems (streamlined for billing, collections, and marketing) fields required for higher billing codes (but not always material to the problem at hand) are completed in less time. So are doctors really the problem?