By John C. Goodman
Originally posted at Forbes, May 2016
You can take this to the bank. Every innovation in the production of every good or service – anything that lowers costs or increases quality – originates on the supply side of the market. There has never been a successful innovation that originated on the demand side.
This principle applies to health care in spades. For as long as I have been in health policy – more than 30 years – I have been dealing with non-doctors who have a deep, abiding desire to tell doctors what to do. Yet I don’t know of any example anywhere in the world where this approach has ever worked.
If the definition of insanity is repeating the same thing over and over again and each time expecting a different result then “insanity” is the appropriate word here. The Obama administration has spent millions of dollars on pilot programs and demonstration projects in a fruitless attempt to discover how to better practice medicine. It has spent millions more trying to herd Medicare patients into Accountable Care Organizations – super HMOs with financial incentives to hit quality measures. That hasn’t worked either.
So what does the Obama Administration propose to do about all of this? More of the same.
How Medicare Pays Doctor Today. Unlike every other professional, Medicare pays doctors by task and most private payers piggy back on the system and pay the same way. There are about 7,500 of these tasks. One problem with paying this way is that the payer will inevitably leave important procedures off the list of tasks – since none of us can think of everything. For all practical purposes, Medicare doesn’t pay doctors to talk to patients by phone – the way lawyers, accountants and other professionals do. Nor does it pay for email. Or consultations by Skype. Or patient education. Or “social work” – no matter how beneficial or cost effective.
So right off the bat, we are dealing with an extremely inefficient payment system. Then there is the complexity of it all. Writing at the Health Affairs blog, Thomas Saving and I made this calculation:
Let’s say that the 50 million or so Medicare enrollees average about 10 doctor visits per year and let’s conservatively assume that each visit gives rise to only one procedure. Then considering all of the ways a procedure can be correctly and incorrectly coded [by the nation’s 800,000 doctors], Medicare is regulating 3 quadrillion potential transactions over the course of a year! (A quadrillion is a 1 followed by 15 zeroes.)
Is there any chance that Medicare can make the right decisions for all these transactions? What does it mean when it makes the wrong decisions? All too often that means doctors face perverse incentives to provide care that is too costly, too risky and less appropriate than the care they should be providing. It also means that the skill set of our entire supply of doctors will become misallocated, as medical students and even practicing doctors respond to the fact that Medicare is over-paying for some skills and under-paying for others.
New Payment Method: Pay-For-Performance. The current plan is to create two new payment systems. One, called the merit-based incentive payment system (MIPS), would continue payment by task. But as Mary Agnes Carey explains at Kaiser Health News, Medicare would increase or decrease the payment based on
[F]our performance categories: cost, quality, how doctors use electronic health record technology in their daily practice and share that information with other providers, and activities that improve care, such as care coordination or how much beneficiaries are engaged in their care. That composite score is used to determine a positive, negative or no adjustment to a provider’s Medicare Part B payment for a medical service.
New Payment Method: Pay-For-Performance on Steroids. The second method of payment is largely an extension of Accountable Care Organization approach, under which a team of health professionals provides coordinated care centralized around a “medical home” and doctors, hospitals and other health care providers form networks to provide integrated, coordinated care. Under this model, providers take more risks, but if they hit the performance measures, they can make more money.
The Pursuing What Doesn’t Work. There have been many, many studies of pay-for-performance both in this country and abroad. None of them are positive. See Does Pay for Performance Work? And Bad News for Obamacare: Pay for Performance Doesn’t Work and the links to the relevant academic research.
Ignoring What Does Works. Meanwhile there are places where pay-for-performance techniques do work. But these are not systems designed by government bureaucrats or anyone else on the payer side. They are systems designed by doctors – most often working in Independent Doctor Associations, usually in the Medicare Advantage program. Coordinated care, integrated care, team care, medical homes – all that can apparently work when it is developed on the supply side of the market.
So why is the Obama administration ignoring these private sector innovations? Maybe it’s because they weren’t invented in Washington DC.