New Year’s Resolution? Let’s Make it about Cost

This post was first published on Project Millennial.

2013 has been the year of the (botched) insurance expansion. But if the experience of other countries is any lesson, we should hope for political attention in 2014 to be devoted to another looming issue.

Over dinner with a few panelists at the Lown Conference, I learned about their involvement with the World Bank’s Universal Health Coverage (UNICO) Study Series, a comparative analysis of efforts to achieve universal coverage in 22 countries and Massachusetts (“the People’s Republic of Massachusetts”, as one panelist fondly called it).

And Then Came the Cost Issue

Befittingly, this People’s Republic was recently profiled in Health Affairs for lessons learned from its experience with cost containment, an issue it has been grappling with since achieving near-universal coverage in 2006.

Lesson number one?

“The first lesson is that the implementation of near-universal coverage triggered a new political resolve to address the difficult challenges of cost containment.”

In other words, achieving near-universal coverage subsequently made the cost issue too dire to ignore. While there is debate over whether insurance expansion accelerated cost growth (some say yes, others no), the facts are that Massachusetts’ per capita health spending is 15% higher than the national average, and that it has the highest individual market premiums in the country.

(Update: Medicaid expansion increased ER use by 40% in Oregon, so it’s not an inconceivable hypothesis.)

Interestingly, the same sequence of events is playing out halfway across the world.

Taiwan’s Looming Health Budget Challenge

After returning from Boston, I had the opportunity to grab lunch with an individual who was involved with Taiwan’s health sector for a number of years. Through that, I learned that Taiwan is facing a remarkably similar cost challenge.

Taiwan’s National Health Insurance (NHI) system has been lauded as a model for developed nations. Established in 1995, it expanded coverage from 57% to 97% within a year. But as might be expected, this coverage expansion unleashed a surge in utilization, nearly doubling outpatient visits, hospital admissions, and use of ED services among the previously uninsured. Since then, growth in outpatient visits, ED visits, and surgeries has vastly outpaced overall population growth.

To date, Taiwan has addressed the cost containment problem partly through aggressive price setting—sometimes below the cost of providing those services. Yet ironically, this has pushed providers to rely on increasing utilization as their only survival lever. This supply side-induced demand, along with low co-pays, no gatekeepers, and the political difficulty of raising premiums has created a financial situation where NHI expenditures have outpaced revenues almost every year since 1998.

Price controls will likely only work in the short term. In the long term, the NHI will need to alter its incentives to reign in over-utilization while encouraging greater provider efficiency, much as BCBS has done in Massachusetts. Shifting to a DRG-based payment system by 2015 is a good first step.

We concluded our conversation with a pronouncement that struck me: “China’s health system is about 20 years behind Taiwan’s in its evolution, so I think it can learn a lot from Taiwan’s experience.”

Marching Toward Cost Escalation in China

There’s a lot of wisdom in that statement. To date, most reform efforts in China have focused on expanding access, particularly in rural areas. As described in this UNICO report, insurance coverage in rural China had plummeted from 90% of the population to less than 10% with the collapse of the commune system in the 1980s. In the last decade, through a series of programs and reforms, China achieved 93% insurance coverage nationally, and just announced this past August that it had achieved 99% rural insurance coverage. While the accuracy of the numbers can be disputed, there’s no doubt that a lot more people now have access to health care services.

Which raises the specter of cost escalation in China’s not too distant future. Alarmingly, insurance expansion in urban China has been found to lead to such supply-side demand inducement (e.g. unnecessary treatments, expensive technology) that getting insured can actually increase one’s financial risk. Furthermore, China’s current insurance schemes have been criticized for being too narrow in scope (not enough procedures covered) and depth (not enough reimbursement). If China deepens the value of its existing benefits (as is much needed), we could expect demand to surge even higher.

Seek Truth from Facts

I’ve breezed through a lot of details to keep this post manageable, and for those who are interested, there’s a wealth of information in these papers on the reforms in Massachusetts, Taiwan, and China.

But the experience of all three shows that upon achieving near-universal coverage, cost containment issues are sure to follow. It would therefore seem like a prime opportunity to seek truth from the facts of the trial-and-error already happening in other countries. As our nation’s health care marches toward a costly ruin, perhaps the time is ripe for a UNICO-like study series on cost containment.

China’s Third Plenum: Reform is Coming

This past week, Washington was gripped with President Obama’s surprise announcement that you can really keep your health care plan, period. Halfway across the world, China and China-watchers were gripped with another set of announcements:

The results of the Third Plenum of the 18th Central Committee of the Chinese Communist Party (CCP).

So What in the World is a “Third Plenum”?

The Plenary Sessions are meetings of the Central Committee, a subgroup of the National Congress. The Third Plenary Session (“Third Plenum”), which occurs once every five years, is the meeting during which leaders introduce new economic and political reforms. This year’s Third Plenum opened one week ago (Nov 9) and ended last Tuesday (Nov 12).

(For more details, here’s a great explanation of the Plenary Sessions, complete with infographic.)

To underscore the importance of this past week, it’s important to understand what’s happened during prior Third Plenums (Plena?):

  • In the 1978 Third Plenum, Chairman Deng Xiaoping consolidated power, introduced radical economic reforms that propelled China’s remarkable economic growth, and implicitly attacked the cult of Mao, repudiating the Cultural Revolution.
  • In the 1993 Third Plenum, Premier Zhu Rongqi announced the socialist market economy (no contradiction there) and loosened China’s state-owned sector.

So it’s no surprise that analysts excitedly awaited the results of this year’s Third Plenum, especially notable for being timed with the first year of Chairman Xi Jinping’s rule.

They Were Disappointed…Prematurely?

Shortly following the conclusion of the Third Plenum, the CCP released a vaguely-worded communiqué through Xinhua, its state news agency. It was immediately attacked for being heavy on jargon and short on specifics, tempering its promises of economic and political reforms with repeated nods to the “leading role of the state-owned economy”.

Notably, what the communiqué did not mention included:

  • No mention of financial sector liberalization (the Swattie in me wonders if this is necessarily a bad thing)
  • No push for further urbanization (likely because this would require overhauling the age-old hukou system)
  • No indication that President Xi would take on the state-owned enterprises (which dominate China’s oil, aluminum, coal, banking, telecommunications, electricity, transportation and other fields)

Immediately following the release of the vague communiqué, global stocks dipped, headlines called the Third Plenum “disappointing” and “a dud”, and analysts called previously optimistic expectations “sanguine and naïve”, claiming they overestimated Xi and Beijing’s actual power over the rest of the country.

But in the best post-communique analysis I’ve seen, Zachary Keck at The Diplomat argues that disappointment with the Third Plenum is premature. And precisely because it lays the groundwork for helping Xi consolidate enough power to drive through subsequent reforms.

Specifically, the communiqué created two new political bodies that helps Xi consolidate power:

  1. A new state security committee, analogous to the U.S.’s National Security Council. As Keck argues, this new committee is likely meant to “ensure stability as the reforms progress”, which bodes poorly for human rights, but signals the CCP is serious about implementing reforms.
  2. A central leading group reporting directly to top leadership, rather than to the government. This would assist Xi in pushing through reforms by sidestepping the bureaucratic red tape—precisely addressing the problem of limited central power that Beijing faces.

Hot off the Presses: A Blueprint for Reform

And right on cue, the CCP released a new blueprint for reform yesterday, with many more details on specific reforms. These include:

  1. Loosening of the one-child policy. Urban parents can now have two children if either spouse is an only child (previously, both had to be only children).
  2. Abolishment of labor camps, which have been used to imprison people for up to four years without formal arrest or trial. (Unclear how heavily this will be enforced in practice.)
  3. Strengthened rural property rights, allowing farmers to gain more profit from land sales to local governments (hopefully resulting in fewer of these).
  4. Loosening of the hukou system, which may eventually alleviate social and health care access issues for migrants.
  5. Economic liberalization and reforms. A system for insuring back deposits, fewer restrictions on offshore securities investments and M&As, looser pricing controls for energy, water, and telecommunications, and other financial changes I’m not well-versed enough to understand.
  6. Environmental protection-based growth incentives. Specifically, local governments wouldn’t be judged on economic performance alone, but also on environmental protection efforts. That’s cool.

And finally…accelerated health reform. Overhaul of public hospital system, more community hospitals, changes in doc pay, and catastrophic health insurance. I hope to explore the details more in a later post, but for now, this great interview with Shanghai’s former mayor Shen Xiaoming about health reform in Shanghai may provide some indication of where China’s health system is headed.

Doctor Knows Best? If Not, Who Does?

A few weeks ago, as I ate lunch with a few of my coworkers, we came upon the topic of our plans for the future.

“I’m planning on studying medicine,” I announce. That’s always been the plan coming in.

“Even after working here?” my coworker asked, alluding to the…less than flattering view of doctors one can get working in the hospital research industry.

And it’s true: sometimes it seems like doctors are the biggest obstacle to transforming the way we deliver care in this country. They fail to follow care standards. They screw up efforts to reduce supply costs. And as made famous by the landmark Dartmouth Atlas study, physicians’ discretionary decisions are a primary driver of the (presumably) unwarranted health care spending that drives up cost.

In response, the government has taken it upon itself to drive health care decision-making toward higher quality, more rational care. It’s enacted penalties for hospitals with excessive readmissions, designed a value-based purchasing program tying hospital payments to a growing number of quality indicators, and outlined 33 measures for health systems hoping hoping to achieve shared savings by forming Accountable Care Organizations.

It’s not hard to imagine these incentives filtering down to the ultimate decision-maker: the doctor. Indeed, last month the New York Times reported that the country’s largest public health care system, Health and Hospital Corporation, will begin tying their doctors’ raises to performance on quality measures. In fact, Medicare itself has even made plans to apply quality performance measures directly to physicians starting 2015, although it hasn’t quite figured out how it will do that yet.

Given the push to hold physicians more accountable for “doing the right thing”, a 2010 article from Dr. Jerome Groopman struck me as incredibly relevant. Dr. Groopman is a oncologist and staff writer for The New Yorker who has written about the intersection of medicine and behavioral economics. In this article, written when Obamacare was still making its way through a bitterly divided Congress, Dr. Groopman lays out two opposing views of how our government should influence doctors’ decisions:

  1. The first, based on concepts in behavioral economics (and supported by Dr. Groopman), argues for creating structures that “nudge” physicians toward making the best clinical decision without forcing them into making one.
  2. The second, supported by then OMB director Peter Orszag, believes that to truly change behavior, we need to combine the dissemination of clinical information with “aggressive promulgation of standards and changes in financial and other incentives.”

Three years later, it appears the second viewpoint has won out.

For those of us working in an industry geared toward helping hospitals respond to these incentives, it can be easy to see doctors as the obstacle to implementing widespread adherence to clinical protocols and moving the dial on these performance measures. However, sometimes I wonder if we need to slow down and think about whether it’s really as simple as getting doctors to do the right thing.

Last week, a new study reported (disconcertingly) that excessive hospital readmission rates–one of the measures CMS is already penalizing providers for–isn’t related to mortality at all. It’s not the only study that has questioned whether readmission rates are a good proxy for “good care”, and it makes you wonder how many of the other performance measures have conflicting evidence.

In theory, if we gathered enough clinical evidence and limited ourselves only to measures that have been shown to be strongly correlated with quality outcomes (assuming we can define them first), we could create care standards that we could then promulgate to physicians for adherence. But even for practices for which the clinical evidence is unequivocal on, it still might not be in our best interests to get all doctors to adhere to them. One emerging criticism of randomized controlled trials–the “gold standard” of clinical trials–is that they are based on highly controlled situations with 100% adherence to protocols and a subject sample from which non-ideal participants have been excluded. Real world medicine is rarely as clean. Yet when a health system creates clinical protocols for its physicians, or when CMS lays out performance measures for physicians across the country, we are essentially creating default options without considering the individual circumstances of each case. “Setting the default option that doctors will present to patients requires us to make value judgments,” writes Dr. Groopman. Given the uncertainly of health care, are we really ready to do that for huge swaths of the population?

The answer, I think, should certainly not be a return to the hands-off approach of fee-for-service. There’s enough evidence out there to show that significant care variation is unwarranted, and there are enough success stories of hospitals and health systems that have partnered with their doctors and achieved remarkable improvements in outcomes at reduced costs. But it should serve as a reminder to us that even if it sometimes feel like our health care problems would be solved if only doctors would consistently do the right thing, often times what “the right thing” is isn’t so clear.

Then again, maybe in the future, we’ll just have supercomputers like Watson tell us what to do.

(My List of) 2013 Health Care Trends to Watch

Welcome to 2013! Apologies for the long hiatus since last October; I got hit with crunch time at work, then the flu, and then went on a week-long road trip to the south.

Being super nerdy at the CDC.

Being super nerdy at the CDC.

However, with the project finished, the flu defeated, and myself filled with more fatty fried foods than I’d care to think about, I thought it would be appropriate to kick off 2013 with an overview of the biggest health care trends to watch for in the upcoming year. I know, every health news outlet is doing it–but for those who don’t subscribe to Modern Healthcare and Kaiser Health News, here is what I hope to be a pithy, reader-friendly list. Enjoy!

  1. The impending (?) roll out of health insurance exchanges. Mandated by the Affordable Care Act, state-wide exchanges are slated to begin enrollment this October. What is a health insurance exchange? Imagine Amazon.com, except for health plans, where individuals without health insurance (or whose companies drop their health insurance because the penalties aren’t high enough) can go to buy their own insurance. Want a living example? Visit the Massachusetts Health Connector site, which has been up and running since 2006. The Department of Health and Human Services conditionally approved 8 more states last Thursday, bringing the total to 19 plus DC. Key questions include how many employers will actually leave their employees to the exchanges (one survey suggests, none); how insurers will react to capture this new market segment; and perhaps most importantly, whether the fed can actually roll out well-functioning exchanges in the 25+ states that have opted for federal exchanges by the October deadline.
  2. More posturing and debate about Medicaid expansion. The ACA had initially required all states to expand eligibility of Medicaid to all adults under 65 at or below 133% of the federal poverty line (with the fed covering 90-100% of the cost). Thanks to a surprise Supreme Court ruling, that expansion is now optional. Check out this cool map I’m shameless posting from my company showing where the states stand on the expansion decision. More news stories come out every day, with Idaho’s governor rejecting expansion this Monday, New Mexico accepting expansion today, and Florida’s governor brandishing exorbitant costs of expansion–even when his own experts tell him the numbers are wrong.
  3. Possible Medicare overhauls? The fiscal cliff fiasco and the last-minute deal in Congress didn’t save us from disaster–it just created Fiscal Cliff 2.0 in February and March, during which automatic 2% spending cuts are scheduled to hit again unless Congress can strike another deal. The fact that we’ve already played the tax-increase card has some analysts predicting the end of Medicare and other entitlements, which will have to be cut to escape our deficit crisis. Not so, say others, who think that Medicare and Social Security are still too sacred to be touched. In any case, Pres. Obama has expressed a willingness to consider changes to Medicare to address its unsustainable cost to the government, and may even try to use it to find common ground with conservatives.
  4. Continued transition to “value-based payment”. For those unfamiliar with health care jargon, that basically means shifting from a world in which providers are paid for volume of services to one in which they are paid for based on the quality of care they provide (you think we’d have figured that out sooner, go figure). Much of this shift is being accelerated by various ACA programs. CMS kicked off its Value-Based Payment program last October (here’s a great overview by Kaiser Health News), which is already rewarding and penalizing hospitals (apparently those here in DC are doing the worst), and beginning this October will be adding patient mortality to the mix of incentive measures. CMS is also accelerating its Accountable Care Organization program, in which groups of providers can band together into systems that can be awarded savings for providing cost-effective, high-quality care. Starting with only 32 “pioneer” ACOs in December 2011, recent research indicates 328 ACOs as of November 2012, with CMS expected to announce the 2013 participants soon just announcing 106 new ACOs today (updated Jan. 10).
  5. …And due to the surging interest in ACOs and population health management, hospitals are responding with continued consolidation, building of physician networks, and partnering with post-acute and other providers. Scale is once again the name of the game. Expect a slew of anti-trust cases to follow.
  6. Finally, often under-reported by the mainstream media, expect further developments in health IT. Continuing growth of electronic health records, app-enabled consumer tech, and cybersecurity breaches, oh my! Take a look at some of the biggest trends here.

SCOTUS to US: “Look, We’re Politically Neutral!”

Four days after the historic health law decision, and news outlets have already moved on to speculations about winners and losers, the next political battlegrounds against the law, and the impending fall of Medicaid (and why it won’t happen).

However, let’s backtrack a bit; for those of you who didn’t rush to download the 193-page decision as soon as it was available, here are the take-away points (as well as political points):

  • The individual mandate does not regulate existing commerce, but instead compels individuals to become active in commerce. In this manner, it is NOT constitutional under the Commerce Clause. (+1 Republicans) This is likely what caused a number of news outlets to erroneously report that SCOTUS had struck down the law, causing mass confusion.
  • However, the mandate is functionally equivalent to a tax. Therefore, it IS constitutional under Congress’ power to tax. (+1 Democrats) This is, of course, in spite of the fact that a few paragraphs up, the Justices had just rejected the applicability of the Anti-Injunction Act (which prevents a ruling on taxes before they are collected) because “the Affordable Care Act describes the payment as a ‘penalty,’ not a ‘tax.’”
  • The Medicaid expansion clause of the ACA (Huh? This was an issue?) is NOT constitutional despite the federal government’s offer to pay for 90-100% of the expansion, because the threat to withdraw Medicaid funding from states that fail to comply becomes unreasonably coercive. (+1 Republicans)
  • However, this “constitutional violation is fully remedied” as long as the government does not execute said threat. (+1 Democrats)
  • Justice Kennedy, the expected swing vote, sided with the Conservatives in a rather scathing accusation of “vast judicial overreaching” (+1 Republicans). Chief Justice Roberts, long believed to be likely to side with the conservatives unless Kennedy swung liberal, actually turned out to be the key vote in upholding the law (+1 Democrats).

The whole decision reads like a blow-by-blow boxing match, with almost equal attention given to both sides of the political aisle. Particularly surprising was the convoluted method of justifying the mandate, validating conservatives’ concerns about regulating so-called “economic non-activity” while in effect delivering a victory to Obama. Perhaps Obama’s warning of “judicial activism” three months ago was hanging rather heavily over their heads.

The fact that the Justices couldn’t tell the difference between health insurance and broccoli means one of two things:

  1. They actually didn’t understand Solicitor General Verrilli’s argument (which is not unimaginable, given his oh-so-impressive eloquence). This is the same argument made by many economists, that a mandate to purchase insurance isn’t compelling people to purchase a good, but rather regulating a way to pay for health care, which everyone is already in the market for. As Cornell University economic professor Robert H. frank writes, “[the Justices’] interpretation will strike many economists as a misreading of the mandate’s purpose. It isn’t that people should buy health insurance because it would be good for them. Rather, failure to do so would cause significant harm to others.”
  2. They were throwing a political bone to the Republicans.

Given the convoluted rationale for the ruling on the health law, including a number of arguments that seem to fly in the face of the expectations of experts, I am led to believe that here is a case where the Justices tried everything in their power to maintain an image of political neutrality for the court. As Santa Clara University law professor Bradley Joondeph stated, “The court avoided, despite an enormous amount of pressure to invalidate this law, staining itself as excessively partisan.”

Which, ironically, reveals just how cognizant of political pressures the court actually is.

The Supreme Court Decision: A Birthday Gift for Rousseau?

Tomorrow is the day that political pundits, news media outlets, and most of the general public have been anxiously waiting for, the day when Obama’s landmark legislative accomplishment could either be validated or razed to the ground. Perhaps less known, tomorrow also happens to be the 300th birthday of Jean-Jacques Rousseau, whose writings on political philosophy are strikingly relevant to tomorrow’s decision.

Prof. Frederick Watkins provides an insightful overview of Rousseau’s philosophies here. The crux of Rousseau’s theory on the social contract can be summarized as such:

According to Rousseau, humans in presociety times was neither brutish (a la Hobbes) nor noble, but simply operating by the sense of self-preservation, and never interacting enough with other humans to need social morals. The increasing concentration of the population and the development of society requires humans to bond together and form a social contract, complete with rules for governance by which all agree to live.

In the society-gone-wrong Rousseau scenario, the dominance of private interests and increasing economic inequality allows the rich and powerful to usurp governance, resulting in a populace hoodwinked into thinking it’s free but actually serving the wishes of the elite. “Man is born free; and everywhere he is in chains.” However, in the ideal Rousseau scenario, civic-minded individuals set aside their self-interest and adopt a General Will, making political decisions that improve the general societal welfare, which they then agree to abide by. As his (in?)famous quote goes, only then can man “force himself to be free.”

The distinction that saves Rousseau’s line of reasoning from tyranny of the majority is his distinction between an individual’s “particular will” and society’s  “general will”. For Rousseau, it wasn’t simply enough for policies to be determined by majority vote or even unanimous consensus. Instead, each individual had to make decisions with the good of the general society in mind, suppressing any selfish urges that may conflict with this ideal. As a young, active, healthy adult, I may personally prefer to save the $700 in annual health insurance premiums for other expenditures, but as a well-informed citizen, I would prefer to live in a society where I can be assured that if I run into an unexpected health problem, or when I become old and decrepit, I will nonetheless have access to basic health care services. If I truly believe in advancing the general good, then society’s collective decisions will be exactly the same decisions I want.

Watkins seems almost prescient when he writes:

For the modern constitutionalist, as for Rousseau, respect for the moral responsibility of individual citizens is the foundation of all political legitimacy. Coercion is justified only in so far as it is based on some sort of general agreements. Constitutional government assumes that all the citizens of a particular state, no matter how divided they may be in their personal opinions, are so firmly agreed in their desire to share a common political existence that they are willing to repress their particular views in the interest of common action. The skill of constitutional statesmanship consists in limiting the demands of collective action to the area of actual or potential agreement. If this proves impossible, minority groups may come to feel that the values of the community are less important to them than the particular interests they are asked to sacrifice on its behalf. When this happens, there ceases to be any constitutionally legitimate basis for coercion, and a proper constitutional government must either relax its demands in such a way as to win back the disaffected minority, or else recognise the right of the latter to set themselves up as an independent political society. (Emphasis mine)

In about eight hour’s time, we will find out whether we live in a society in which consideration for a general will is too much to ask for.