Affordable healthcare will be defined by the government starting in 2014 for employer-sponsored plans as a maximum 9.5% of an employee’s household income. With the average large employer cost nearing $10,000 annually and likely to reach $13,000 by 2014, many employers will begin to reexamine the cost of providing “Essential Benefits Plans” and affordable employee contributions. Smaller, low wage employers are unlikely to be able to offer affordable health benefits in the future and many are anticipated to exit the market, either indirectly through transfer payments to employees or simply dropping coverage and paying the penalties.
The only possibility to avert the coming crisis in coverage and affordability is to work on the root causes of rising healthcare costs. Individuals (as patients and taxpayers), employers, and the government all have a stake in this game, as the impact of increasing quality and decreasing costs of a driver of 17% of our national GDP is significant. Let’s examine the steps that we must take to create a better healthcare delivery system and reduce costs through consumerism, quality, and efficiency:
Step One: Create Incentives for Everyone
Since our market-based economy works best when everyone has an incentive to purchase and provide quality healthcare efficiently, everyone must have a financial incentive to participate. Individuals’ healthy behaviors, providers’ cost-efficient treatment plans, and group administrators’ (employers, insurers or trust funds) willingness to share positive results with their members all contribute to an incentive-based system that will create decisions that have positive economic results.
A true incentive-based system will reward all those that participate positively and penalize those that do not. Members that engage in health management activities should be rewarded with better coverage (a la value-based benefits) and lower costs based on their collective results. Providers that meet quality and efficiency standards should also be rewarded for their efforts through incentive-based contracting.
Step Two: Develop Real-time Information Systems
Every industry has gone through a major improvement in quality and efficiency when it adopts real-time information systems. Industries leaders such as Walmart have emerged by embracing the power of information by capturing real-time purchasing patterns, evaluating product profitability and shelf placement on a daily basis. It is time for healthcare to do the same.
EMRs and real-time claim adjudication will allow providers and insurers to understand emerging patterns of care, predict and communicate costs to patients at the point of sale, and more quickly identify patients at risks and institute lifestyle coaching and disease management outreaches more quickly and effectively.
Changing from an industry that receives its management information within weeks and many time months to an industry that is monitored electronically daily will bring healthcare on par with the vast majority of U.S. industries, leaving only the government that uses many months of old information to make decisions!
Step Three: Establish True Price Transparency
Part of the breakdown of our system today is that there is no true price transparency for patients or providers. Before a majority of Americans were covered under reimbursement mechanisms, doctors and patients had discussions about the cost of treatments as many individuals were self-pay and the physician provided many of the treatments in the office.
Given the multitude of provider contracts and benefit plans, no provider has the tools or the time to help patients understand the net cost to them individually or to their plan sponsor. Treatment decisions should be made based on expected outcomes as well as their cost. In order to accomplish this, organized systems of care and insurers have to work together to provide real-time pricing delivered at the time of service in the provider’s office.
Much like a real-time price quote at an auto-body shop, patients will receive an estimate and their out-of-pocket costs prior to electing a procedure. From changing an off-formulary drug to forgoing an elective CT scan, patients and providers can only choose the most efficient and medically appropriate treatment by knowing the real price prior to purchasing the service.
Step Four: Stop Paying for Inappropriate Care
As mentioned by the proponents of the PPACA, up to 40% of medical spending is inappropriate, redundant or unnecessary. Medicare took a tiny step forward in not reimbursing “never” events and insurers followed suit. What is much more needed is a true commitment on behalf of the insurer that inappropriate care will not be reimbursed.
Real-time adjudication allows the insurer an avenue that they have never had before – not paying for procedures that are inappropriate before they are performed. It is much easier to enforce standards of care if everyone knows that they will not be paid if the service is performed ahead of the event.
While Medicare will likely back up private insurers on this initiative, it will truly be up to the private sector to put in the necessary controls to reap these savings. The uncalculated upside to not paying for inappropriate and unnecessary care is the increase in employee productivity and higher quality of life, both of which can weigh just as greatly as the averted cost.
Step Five: Reward
Health behaviors make up to 40% of the cost differential between costly and less costly members. Individuals who take responsibility for their health should be rewarded through lower plan costs. In order for individual members to benefit, groups have to be able to rate individually or at least on a cohort level. While PPACA will be opening up the insurance market to a large number of individuals, few will reap the benefits of caring for themselves diligently.
The underwriting limits based on age and smoker/nonsmoker will not create the incentives that will reward healthy lifestyles. In addition, the current select individual market that currently has cost 20% less than the small group market will be burdened by the entrance of the formerly uninsured. While there are only estimates of the higher cost burden of the uninsured, experts expect both the disbanding of small groups and the uninsured will increase costs in the individual market by at least 20%.
It is ironic that with the creation of a larger individual market, individuals will be the ones that will suffer the largest price inflation. Only through alternatively rated group structures, either through large employers or large coalitions of smaller groups, will individuals reap the financial benefits of taking better care of themselves.
Step Six: Promote Integrated Health Management Systems
Much of the discussion of the future of high quality, cost-effective healthcare has focused on providers working together as cohesive groups. The examples of Geisinger, Mayo Clinic, The Cleveland Clinic, and Group Health Cooperative were some of the models of integrated health management systems highlighted during the reform debate.
The evidence is direct and overwhelming; doctors need to practice in organized systems of care to provide the best clinical and financially sustainable results. Many high performing systems are in place in urban areas today and need to be promoted to employees and members as the truly cost-effective, high-quality alternative.
In areas that are more sparsely populated, providers need to be linked together in virtual patient-centered networks that are linked electronically so that all providers can monitor and understand how a patient is being treated across the clinical spectrum. Whether in-house or across the country, coordinated care through the use of patient-centered EMRs will become the standard.
Step Seven: Take The Excess Out of the System
This is where everyone who is part of the healthcare insurance and delivery system gets to look in the mirror and ask the question, what can I do to take excesses out of the system. Can practitioners take away excess cost that does not contribute to the quality of efficacy of care?
Can insurance organizations eliminate unnecessary overhead through the elimination of redundant systems, unnecessary functions, organizational levels, or reliance on out-moded distribution systems? Can members remove excessive costs by making more educated treatment decisions? Can hospitals stop the overdevelopment of high tech, extremely expensive expansion projects? Can other excess costs such as the cost of our litigation and malpractice and the overuse of brand name pharmaceuticals be controlled?
Since we can only control what we ourselves do, each and every individual who is part of the healthcare today should ask themselves, how do I help create more affordable healthcare? Only when those that are committed to the outcome outnumber those that are interested in keeping the status quo, will the pendulum start to swing toward more affordable healthcare.
The seven steps toward affordability have hundreds if not thousands of actions that need to be taken over time to attain the end result.
However, each individual working on a single action will create the tens of hundreds or thousands of events that will start to turn the U.S. healthcare system from an overweight immature industry to a fit and mature one. There are invariably other steps and actions that I overlooked in this initial article. I look forward to your comments and ideas on how to transform our industry into a robust, positive contributor to the U.S. economy.