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Controlling the Costs of a Single-Payer Heatlhcare System
April 6, 2012 8:04 AM   Subscribe

How would Congress control costs in a single-payer healthcare system?

In the midst of some fairly in-depth discussions about the ACA, the individual mandate, and possible alternatives, I ran into an issue I couldn't really navigate around without a lot of hand-waving, so I'm hoping the hivemind has some links or info that might help.

First, take as a given that if universal, single-payer health-care were implemented in the United States it would have the effect of having some cost-lowering effects on account of: more preventative care, less cost shifting, and a generally more well-cared-for populace. I know there are some debates about this, but I'm not worried about those at the moment.

Instead my question is how congress keeps prices down with respect to what the prices "should" be.

To elaborate: once single-payer is implemented, health care costs the government whatever it costs, but it seems that, over time, a system this large is going to produce waste, corruption, and generally be subject to the kinds of things federal programs have long been ridiculed for.

Let's also assume, for the sake of argument, that congress has a strong motive to control costs (maybe there's a balanced budget amendment?) and doesn't have a huge pharma / medicine lobby pushing them to spend more and more on healthcare all the time, even if they can't afford it.

So what's out there? How do other single-payer countries keep the costs down? Would those methods be applicable in a system as large as the United States'? What mechanisms and organizational structures might the federal government use to police their rates? What roles do the States have in all of this?

Is there any indication that congress could actually be trusted to keep the costs down? Say, examples of programs where they've done comparably to private industry in terms of cost containment?

A natural segue, but one I'm not really thinking about right now: whether or not congress' inability to control costs would make it worse / more expensive / etc. than what we have now or worse / more expensive than some other non-single-payer system.

Those are all tangents I will eventually explore, but for now I'm really interested in this one question, which essentially boils down to: is congress even capable of establishing a system that could control health care costs while providing a reasonable level of care?
posted by toomuchpete to Law & Government (26 answers total) 7 users marked this as a favorite
 
Single payer keeps costs down by putting all the purchasing power in one place. Just like unorganized workers have less bargaining leverage than unionized workers, indivdual customers have less power to negotiate pricing.

A single payer - especially a government, which represents ultimate creditworthiness - can be an active negotiator and not just a passive consumer. They can, for instance, say to a pharmaceutical company, " I'm bringing you a hundred million customers. I am guaranteeing payment for your product. In return, I'm not going to pay your customary $100. I'm going to pay half that. If you don't agree, we'll do business elsewhere."
posted by Benny Andajetz at 8:13 AM on April 6, 2012 [4 favorites]


Like Wal-Mart, in a single-payer system, government becomes a monopsony buyer of health care services and use its leverage to negotiate costs with health care providers.

Medicare is a monopsony buyer of health care services for senior citizens in this country. There's a certain amount of tension with physicians and hospitals because Medicare reimbursements are lower than private insurers, but Medicare provides a large number of customers to physicians, and the standardized billing system keeps administrative costs down for providers. The long term plan to control the growth of Medicare costs is the Independent Payment Advisory Board which will set reimbursement rates, and presumably a single-payer system would have a similar system dedicated to determining how much a single payer insurer would be willing to pay.

That said, Single Payer systems aren't that common in the western world, and I think that the reason they get so much attention is because it's used by the English-speaking neighbor of the US, Canada.
posted by deanc at 8:14 AM on April 6, 2012 [1 favorite]


The biggest issue is catasstrophic care - health costs associated with long hospitals stays and expensive treatments.

However, the average citizen would benefit tremendously for basic, primary care. Many people do not get regular check-ups, and so our health care system does not deal with the problem until it hits the catastrophic stage.

One simple and easy thing that could be done: give every person a $1,000 annual limit. That is enough to get your two check-ups a year, to get your flu shot, and maybe deal with a sprained ankle.

If you do not use the money, it carries to next year. Anything that you need to spend above that amount, you have to go to the private insurance market.

This would solve the co-pay problem that many insurers have. It would provide basic, preventitive care for everyone. It would help catch problems before they become expensive. And, it the cost of the program is completely controlled.

But, neither health insurers nor doctors want this - they want to expensive stuff.
posted by Flood at 8:21 AM on April 6, 2012


All of the above. But I don't know that I necessarily agree with one of the comments above about single payer systems not being that common in the Western world. According to this list of countries with universal health care programs of one kind or another, there are a significant number of Western countries with single-payer systems (although there are just as many other variations, including various mandate-based systems). Also, Canada and the UK set mandatory fee schedules for medical services, so they basically dictate the costs for a lot of services.
posted by saulgoodman at 8:23 AM on April 6, 2012 [2 favorites]


The Kaiser Family Foundation is the go-to source for this sort of thing.

Search results for "public option" return some promising leads and at the top of the heap is the CBO's analysis [PDF] of the Public Option, in which projected cost savings are explained, thusly:
The plan’s payment rates for physicians and other practitioners would be based on Medicare’s current rates but would not be subject to the future reductions required by Medicare’s sustainable growth rate formula; instead, those rates would initially increase by 5 percent and then would rise annually to reflect estimated increases in physicians’ costs. The plan would pay hospitals and other providers the same amounts that would be paid under Medicare, on average, and would establish payment rates for prescription drugs through negotiation. Health care providers would not be required to participate in the public plan in order to participate in Medicare.

Premiums and Enrollment

The Congressional Budget Office (CBO) estimates that the public plan’s premiums would be 5 percent to 7 percent lower, on average, than the premiums of private plans offered in the exchanges. The differences between the premiums of the public plan and the average premiums of private plans would vary across the country because of geographic differences in the plans’ relative costs. Those differences in premiums would reflect the net impact of differences in the factors that affect all health insurance premiums, including the rates paid to providers, administrative costs, the degree of benefit management applied to control spending, and the characteristics of the enrollees (the effects of which would be partly offset by the exchanges’ risk-adjustment mechanisms).
posted by notyou at 8:26 AM on April 6, 2012


But as to the larger issue of government efficiency -- if the argument begins with the premise that government is always corrupt and inefficient, the answer will always be the same: government can't satisfactorily manage health care (nor anything else).

But why begin with that premise?
posted by notyou at 8:33 AM on April 6, 2012 [2 favorites]


...but for now I'm really interested in this one question, which essentially boils down to: is congress even capable of establishing a system that could control health care costs while providing a reasonable level of care?

No, not currently. The divisions are clear and the Republicans fundamentally don't believe in single payer and will attempt to sabotage it at every turn.
posted by Brandon Blatcher at 8:43 AM on April 6, 2012


By removing profit.

More specifically, the countries with single-payer health care who have been the most successful in constraining costs through keeping prices very low have all removed profit on the provider side, by nationalizing the health care industry and making most or all doctors into government employees. My take on the likelihood of that is that nationalizing the financing side is politically a hard sell in the U.S. and nationalizing the delivery side is about a thousand times more controversial.

Alternatively, if the government had the will, a single payer entity could shift the way that care was paid for to put more risk on the providers--in other words, contract directly with groups of physicians and hospitals to provide all the care that patients need for a predetermined flat fee. This is pretty much the managed care model (Kaiser, Group Health Cooperative, Geisenger) and it's remarkably effective at keeping costs low both through lowering prices and (somewhat) through reducing health care use. (Mostly it's due to prices, though.) However, what you're doing in effect there is kind of creating an insurance-provider hybrid organization, so people who have an objection to insurance companies now might not find that very palatable either. A lot of this payment reform stuff actually ended up in the ACA, although the bill's drafters recognized the danger of Congress perpetually meddling in these sorts of reforms down the road under political pressure so they created an independent board (kind of like the Fed) that had the authority to unilaterally implement payment reforms if Medicare costs increase by more than a specified amount. Something like that could also be set up under a single payer system.

Ultimately, regardless of the who the payer is, a system that reimburses doctors and hospitals based on negotiated prices for per-unit services--what we call the "fee for service" system--is naturally going to have difficulty controlling prices and thus overall costs, because providers have the incentive to use all tools at their disposal to push prices up as quickly as possible. The question of "who pays the bills" is a lot less important than "how are we paying the bills."
posted by iminurmefi at 8:43 AM on April 6, 2012 [1 favorite]


It depends on the system, but in a single payer system professionals can be paid a salary instead of per procedure.

Guess what? If you're being paid to do procedures, you do more procedures.
posted by idb at 8:46 AM on April 6, 2012


Single-payer is not government-run healthcare. Government-run healthcare means the NHS in the UK, where the medical staff are employees of the government. Under single-payer, doctors compete for business and both costs and prices are lowered as a result. As stated above, this is the same reason that Walmart is able to squeeze its vendors. On the other hand, there's a safety buffer in that the government can't set prices so low that it would discourage talented people from becoming physicians rather than pursuing a more lucrative career in a less regulated industry. By balancing these competing interests you end up with high quality care at a good value. It's win-win, which is why it will never happen.

An incentive-based system is another idea for reform that makes sense. Instead of paying thousands of dollars for MRIs and other procedures that may or may not be necessary, pay bonuses based on improvement in patients' health and quality of life.

Under our ridiculous free-market system, employers and other group health plans are the customer, and patients are the product. If you are worried about waste and corruption this is where you want to look.
posted by moammargaret at 8:48 AM on April 6, 2012 [4 favorites]


Yikes, I must have done a really poor job with this question, as not a single answer has addressed anything but what I accepted as given. (On preview, I think iminurmefi moammargaret are on the right track for what I'm looking for)

Let me try again, just in case this helps to clarify:

Once congress starts paying for all health care, they set the prices they'll pay for services. Let's assume, for the sake of argument, that all of the answers above explain how and why these prices will be lower, in the aggregate, than what we have now. So let's assume that paying $100 for an MRI provides the average service provider with enough money to cover the total cost of the procedure, plus a reasonable profit margin. Clearly the service providers could get by on $100, but I bet they'd vastly prefer $110 or $150 or even $200. How does congress identify what this price SHOULD be set at?

How do they determine what the prices should be? How do they identify and avoid rent-seeking behavior on the part of the providers? How do they strike that balance? Have they shown the ability to do that in the past in any other program or service?

Put another way: how does the federal government ensure that their costs only increase proportionately with the costs of the service providers?
posted by toomuchpete at 8:52 AM on April 6, 2012


Look, saying that the government could "remove profit" or "negotiate costs" seems to me like just more hand-waving. Anyone who knows anything about economics or who is the least bit skeptical of the benefits of single payer isn't going to accept that answer.

Basically, there's a lot of money being spent in the healthcare system right now. We call some of it "profit," and then people try to demonize that, but the bottom line is that it all goes to "costs" of some kind. Some of those costs are what we might call "good costs" or "necessary costs." If it costs a dollar to make a dose of penicillin, we'd all agree that's a "good cost" for us to pay in order to treat an infectious disease. If it costs $10,000 to manufacture an x-ray machine to diagnose broken bones, we'd likely all agree that that's a "good cost." A well-baby checkup that ensures that a newborn is thriving would likely be a "good cost."

Some of those costs, however, are what many people would consider "bad costs." If a dermatologist makes enough money popping pimples to afford a 90-foot yacht, some people would say he charges too much money for his services and that his "excessive" salary is a "bad cost." When a mentally ill homeless person takes an ambulance ride to the emergency room twice a week complaining of pain and is then discharged when the triage doctors determine that he's making it up to get in out of the cold, the thousands of dollars in unpaid bills he racks up and that are passed on to the rest of us are a "bad cost." A lot of doctors will tell you that most back surgeries are "bad costs," because they rarely ever cure back pain, cost a lot of money, and lead to future medical expenses that could have been avoided if the patient had been treated in more effective, less invasive ways.

The theory behind single payer is that its structure allows us to focus our money on "good costs" and minimize or eliminate "bad costs." To the extent that people rail about removing profits, what they're really saying is that under single payer, drug company CEOs would have their compensation cut, doctors wouldn't go to lavish conventions in Maui, and we wouldn't pay for treatments that many patients demand, but that doctors know don't actually work. Additionally, by alloting more money to "good costs," we could render some of the "bad costs" unnecessary. If everyone has a doctor they can go to for free, most people will go when their stomach first hurts instead of waiting and showing up in the emergency room a day later with a burst appendix. Coverage for diabetes management means fewer amputations and other life-threatening complications.

The question is whether it's possible to target the "bad costs" for elimination without accidentally cutting a lot of the "good costs," or at least "costs for things that patients think they need and that they'll be really upset when someone tells them they can't have." I suspect that's what most people fear when they talk about "death panels." They fear that a government agency somewhere is going to say, "I know you're hurting, but the thing that you think will make you stop hurting is too expensive, so we're not going to pay for it, and furthermore, since we don't pay for it, it probably isn't even available because there's no market for it." And this is a really tough problem. Health insurance companies deal with this now, and that's why you have a fight every month with your insurer over whether you have to use the generic version of your antidepressant, which they say is exactly the same, but which you know from personal experience and your doctor agrees doesn't work as well for you as the brand name version that costs more. People fear decisions being made by anyone other than them and doctors they trust, but any version of cutting "bad costs" is going to involve some degree of government officials overruling patients and doctors by decreeing what is and is not a coverable expense.

Single payer systems in other countries have dealt with this in several different ways. The UK, for example has made most medical providers government employees and set up the National Institute for Health and Clinical Excellence (NICE), which is a government board that appraises the cost-effectiveness of various treatments in various circumstances and then rules on what will and will not be covered. Some countries have preventative and basic catastrophic coverage provided publically for everyone, but a thriving private market for other kinds of care that people want, but the government doesn't pay for. The US Medicare/Medicaid systems, which are basically single payer for the poor and elderly, set price caps on various treatments, which means that some providers will take a bit of a pay cut to provide them, and some will opt out of providing those treatments (or any care at all) to those patients. There are benefits and detriments to all of those kinds of systems, just as there are with any arrangement we could come up with.

The bottom line is that in any healthcare system, someone is going to decide how much it's worth to get various sorts of medical interventions, and those decisions will determine whether the interventions are available to patients and how much those who provide them are paid. In a truly "free market" system, those decisions would be made by the patient and his doctor, but would be highly driven by the patient's financial circumstances rather than by medical need. In the current US system, those decisions are made primarily by insurance companies, who negotiate directly with hospitals and doctors, but who are thought to have less leverage than the government would have, both because of their limited market share and because of the regulations under which they operate. In a single-payer system, those decisions would be made by government officials, who are influenced by politics, but who also have the benefit of monopsony and of having every expert in the world at their disposal.

Like I said, pros and cons to any system, but saying "get rid of profits" is too symplistic, as is saying "death panels."
posted by decathecting at 8:55 AM on April 6, 2012 [5 favorites]


Page three of this pdf from the department of Health and Human Services has a super quick overview of how Medicare has attempted to keep costs under control. It also talks about some historically used approaches that did not work at all. The remaining 17 pages go into detail about how the prices are calculated and controlled, with a discussion at the end of the limitations of the system.

It seems reasonable to think that a future U.S. single-payer system would draw on what's successful in the Medicare approach and hopefully make improvements as well.
posted by vytae at 9:01 AM on April 6, 2012 [2 favorites]


How Medicare Sets Prices: A Primer:
Medicare starts the process by calculating the average operating and capital costs for the average case across all cases – the “base case.”

Thus, at this initial stage, Medicare assumes, in effect, that all hospitals treat only one type of medical case – the hypothetical base case.

Operating costs cover labor and supplies; capital costs cover depreciation, rent and other costs related to capital. For example, for fiscal year 2011, starting in October 2010, the operating cost for the base case is $5,164. The capital cost for the base case in fiscal year 2011 is $420.

Roughly two-thirds of operating costs are thought to represent labor costs. Because wages vary across this vast country, the labor component of operating costs is adjusted, in a rather complicated way, with a geographic hospital-wage index, as shown in the upper left corner of the chart.

The sum of the wage-adjusted operating costs and the capital costs for the base case is shown in the chart as the “base rate adjusted for geographic factors.”

That sum is then adjusted for case severity. Medicare does this by multiplying the “base rate adjusted for geographic factors” with an index of the relative costliness of the particular grouping into which the inpatient case in question falls. The index for the base case is set to 1.
posted by notyou at 9:04 AM on April 6, 2012


Oh, if all you want to know is "how does whoever is in charge of deciding what prices to pay make that decision?" there are tons of existing examples, both in the US and abroad, of how they do that. Look at NICE in the UK, or the French Comité Economique des Produits de Santé (CEPS), which are the government boards in those two countries that evaluate the cost-effectiveness of various treatments to determine whether and how much to pay for them. Look at the US Medicare and Medicaid Advisory Committees, which do the same thing here for those plans. Look at the VA Healthcare system, which sets coverage and prices for military servicemembers and veterans. Heck, look at how US insurance companies evaluate treatment and negotiate with providers. There are lots of examples of people doing what you're asking about. The question, which I think is implicit in your original post, is whether and how we can know whether they're doing a good job of it.
posted by decathecting at 9:04 AM on April 6, 2012


How do they determine what the prices should be?

One of the big things these days is Comparative Effectiveness Research. Every treatment, every procedure, and ever drug must be balanced off against alternatives and the opportunity cost of providing one kind of treatment vs. another. That forms the basis of a lot of government-sponsored health care policymaking.

How do they identify and avoid rent-seeking behavior on the part of the providers? How do they strike that balance? Have they shown the ability to do that in the past in any other program or service?

Galucoma procedure reimbursement is a good example. In the past, ophthamologists realized that the high reimbursement rates for glaucoma procedures and the high rate of glaucoma among senior citizens provided them with an opportunity to treat a large number of patients for a minor condition for a high rate of reimbursement. Medicare started to "catch on" to what was happening, and lowered reimbursement rates, and alternative, lower-cost procedures started to be adopted for treatment.
posted by deanc at 9:04 AM on April 6, 2012


The bottom line is that in any healthcare system, someone is going to decide how much it's worth to get various sorts of medical interventions, and those decisions will determine whether the interventions are available to patients and how much those who provide them are paid. In a truly "free market" system, those decisions would be made by the patient and his doctor, but would be highly driven by the patient's financial circumstances rather than by medical need.

Agreed.

But a major factor in pricing in the "free market" ( and you know you've heard this a million times from corporate spokespeople) is "uncertainty". Health care is often a high-stakes, high-money situation. Insurance companies and health care providers know that, often, they are not going to get paid their full expected amount. To remove some of the "uncertainty" they use premiums, copays, and pricing on everyone to recoup some of those expected "losses" up front.

A single-payer system would lower profit-margin, but it would also lower uncertainty for the providers. Like moammargaret said above, it's win-win.
posted by Benny Andajetz at 9:06 AM on April 6, 2012


How does congress identify what this price SHOULD be set at?

Like nearly all other government contracts, the government could solicit proposals and select the lowest bidder. The government could say "We will hire the lowest-bidding physician group with quality rating XX to provide all cardiology services in northeast Alabama," wait a few months to get responses, and choose one of them.

This is exactly how the government accomplishes most things, like building aircraft carriers, maintaining roads, managing research labs, providing government employee health care, etc.

There are all sorts of reasons this might not be a good idea for universal health care, but it's a method the government could use to set fair prices.
posted by miyabo at 9:12 AM on April 6, 2012


An incentive-based system is another idea for reform that makes sense. Instead of paying thousands of dollars for MRIs and other procedures that may or may not be necessary, pay bonuses based on improvement in patients' health and quality of life.

This is an interesting concept to me, that instead of paying for process, you pay for outcome.

I've heard of this starting to happen with certain kinds of insurance, where instead of paying 3x as much for a problem which takes three doctor referrals to solve, all of the involved providers are paid according to some formula for their role in the outcome, which is given s a certain value. (caveat: i likely misunderstand large portions of this, but that's my understanding of it anyway)

If anyone has any more details/opinions on this sort of system, I'd love to see those, too.
posted by toomuchpete at 9:13 AM on April 6, 2012


Like nearly all other government contracts, the government could solicit proposals and select the lowest bidder. The government could say "We will hire the lowest-bidding physician group with quality rating XX to provide all cardiology services in northeast Alabama," wait a few months to get responses, and choose one of them.

Just FYI, this is how prison healthcare services work now in a lot of places in the US, especially those that have privatized all or part of their prison systems. The Bureau of Prisons or the relevant state agency puts out a call for bids, saying basically, "send us a proposal for providing all necessary healthcare to everyone we have incarcerated, including how much you'll charge us for it, and we'll pick the best (which usually means lowest) bid." The trouble is that you have a huge principal-agent problem. The people who are deciding what counts as "good enough" are not the same people who actually get hurt if it turns out that the result isn't "good enough." Patients want to be the ones who decide what counts as an improvement in their health and quality of life, and many of them fear that third-parties don't do a good job of deciding whether their healthcare is sufficient. Prisoners have basically had to sue the system, often unsuccessfully, because the organizations that take these contracts skimp on necessary but expensive care in order to keep costs low and then try to cover up the resulting illness and death. Prisoners have this problem even when their healthcare is provided directly by government-employed providers, because they have no option to leave the system if they're not getting the care they need, nor do they have effective recourse to the political system to advocate for reforms.

This problem is obviously a lot worse for prisoners than it would be for people in the free world, but you can see this now in the US with people having to fight their insurance companies for coverage because they don't have a meaningful option to threaten to take their business elsewhere if what their insurance company offers isn't working for them. Under a single-payer system, options outside the public system can be severely circumscribed, meaning that if the government decides a particular arrangement is improving, say, cardiology outcomes and cost-effectiveness in your region, you may not have as many options as you'd like if you disagree with regard to your personal heart health. For example, until recently in Canada, it was largely illegal for people to pay out of pocket for private provision of core medical services, even if they were having trouble getting those services due to long wait times for appointments. The principal-agent problem exists in any system that isn't a pure patient-doctor transaction (e.g., private insurance and single payer both create this problem). But the problem becomes bigger the fewer options people have to reject a provider who isn't solvein their problems.
posted by decathecting at 9:35 AM on April 6, 2012


The Bureau of Prisons or the relevant state agency puts out a call for bids, saying basically, "send us a proposal for providing all necessary healthcare to everyone we have incarcerated, including how much you'll charge us for it, and we'll pick the best (which usually means lowest) bid."

There's also the heavy implication that with only a few providers in that market (and ongoing consolidation among those few) the terms of the RFP are dictated not by the state agency issuing them but by the providers themselves.

Back on topic, the Australian system (which is "single-payer plus supplementary", a more common model than Canadian single-payer) provides incentives for cost-control on the provider side through fee schedules and bulk billing, where providers receive 85% of the scheduled fee but don't incur the costs of individual billing and collections.
posted by holgate at 10:06 AM on April 6, 2012


How do they determine what the prices should be? How do they identify and avoid rent-seeking behavior on the part of the providers? How do they strike that balance? Have they shown the ability to do that in the past in any other program or service?

Administratively setting prices is devilishly hard. In health care (just as in education), providers will always justify prices by pointing to costs, but in the long run a lot of costs are set by the hospital itself and so setting prices based on costs just leads to a situation where hospitals have incentives to let their underlying costs inflate--if they're adding a 5% markup on their underlying costs, they're more profitable when their costs are uncontrolled. A better solution is to create a payment system that increases profits to providers when they cut costs, rather than when they raise costs.

One instructive example is Medicare's switch in the 1980s from paying hospitals based on actual reported costs to prospectively paying a flat fee based on the average cost nationally to treat a certain condition. So rather than paying a hospital whatever they claimed their actual costs were for treating a case of pneumonia or performing an appendectomy, hospitals were instead paid what their costs should have been if they were about average in efficiency compared to other hospitals. Those hospitals that were more efficient got to keep the excess as profit; those that were less efficient took a loss. It was extremely successful in slowing down rapidly-rising hospital costs in Medicare.

There are similar efforts afoot to shift payments for physicians in the same way, from a retrospective fee-for-service system to a prospective flat fee based on what the patient's condition is; as a group this payment approach is called "episode-based payments." It's not very fast going, though. One reason why this was easy to shift to this system for hospital-based payments is because an inpatient stay is a very convenient episode of care with a clearly-delineated start and end, one entity (the hospital) delivering care, and a limited set of reasons for people to come into the hospital in the first place. It's exponentially more complicated outside of a hospital, because you have to figure out what an "episode" is (when does it start, what does it include) and how to divide up payment among multiple doctors that may be managing a patient with lots of conditions--then convince doctors to accept this new type of payment. Certain types of care, like surgeries, are much more amenable to this type of payment (for example, all care related to replacing a knee plus all follow-up care for complications within a certain period of time like 90 days). But lots of our health care spending is for chronic conditions like managing diabetes or heart failure and it's hard to know what that "should" cost and how long the episode should last. Plus, you do end up with some of the same problems inherent in fee-for-service care, namely, there's an incentive to increase the number of episodes rather than try other, potentially lower-cost treatments that might not trigger an episode.

While there's been some movement towards episode-based payments for certain types of surgical care, Medicare and other payers have also jumped to a new concept, the Accountable Care Organization (ACO). Rather than set a price for a discrete episode of care, the ACO's payment will depend at least in part on how efficiently they deliver ALL services needed by their patients over a given period of time. This is pretty much managed care / capitation under a new name, except with some modifications to more explicitly consider quality metrics (so providers can't profit by cutting necessary care) and limit the losses provider groups face. Encouraging the formation of ACOs and reforming payment through these groups is a big piece of the current health reform law, and there's no particular reason that it wouldn't work equally well under a single-payer system. Of course, private insurance companies almost ALWAYS follow Medicare's lead in paying health care providers (almost all private insurance companies adopted DRG hospital payments relatively quickly after Medicare had success) so it also doesn't require a single-payer system either.
posted by iminurmefi at 11:24 AM on April 6, 2012 [2 favorites]


Another consequence of the Accountable Care Organization model is that it works best with provider organizations that are integrated across a broad mix of provider types - a hospital system that also operates ambulatory surgery and imaging centers and has a physician group with a mix of primary care and specialty practices. There are some cost-control advantages to this even outside the direct ACO reimbursement structure: for instance it often means that hospital Pharmacy and Therapeutics Committees will have more influence over primary care docs' prescribing habits and pharma company reps will have less. There are some risks, too - if the dominant hospital system in the region is also the dominant operator of freestanding endoscopy centers, for example, I guarantee you the chargemaster price of a colonoscopy is going to be higher at both than if they were competitors.

While the model is still shaking itself out, in my experience reimbursement under an ACO is still much closer to a fee-for-service model than capitation, though. The way I've seen the pilot programs set up, physicians and hospital outpatient visits are still reimbursed on a per-procedure basis, just with a small portion (as in a single-digit percentage) of the FFS reimbursement held back and subject to either not being paid, or paid out at a bonus, depending on annual performance on aggregate quality and efficiency metrics.

Of course, when you're talking about as large a top line as that of a regional integrated healthcare system, even a few percentage points of net revenue is a shit-ton of money.

Another similar program that applies purely to the inpatient acute care side is Medicare's new Value-Based Purchasing initiative, where a small but gradually-increasing percentage of inpatient case rates are going to be subject to similar penalties or bonuses based on the hospital's adherence to specific clinical effectiveness standards, and their results on the HCAHPS patient survey on their patients' experience of care.
posted by strangely stunted trees at 3:51 PM on April 6, 2012


We call some of it "profit," and then people try to demonize that, but the bottom line is that it all goes to "costs" of some kind.

Just for clarication, this comment is not technically correct and mischaracterizes what accounting profit is.

Profit is the surplus after all operating costs--including whatever salary the hypothetical dermatologist in the example up-thread might use to buy a 90-foot yacht--are accounted for. If the revenue goes toward any normal cost of doing business, including any personnel or capital maintenance costs, by definition, it's not profit.

Profits are typically returned to investors in the form of dividends or reinvested into an enterprise for purposes of expanding or improving operations (or bolstering capital reserves). It's worth noting, some of the private health insurance companies are organized as nonprofit entities, but the majority are not.

The reason people bring up "profit" when arguing that a single-payer or other national health care model would be more cost-efficient is because, in strictest terms, profit creates a kind of economic inefficiency: theoretically, a public entity that otherwise runs its operations more or less just as efficiently as a private, for profit entity does would be able to cycle more of its revenues back into its operations without having to skim off some amount of its receipts to return to investors.

Consistently creating profit to return to investors requires either charging more than the most efficient possible price for services, continually cutting operational costs but leaving end-consumer prices unchanged, or diminishing the quality of services over time but leaving end-consumer prices the same.

One of the traditional arguments against public health care in the US is that public health care is anti-competitive and antithetical to the US's free market system, because it would be impossible for private health care insurance and/or service providers to compete on an equal footing with public alternatives.
posted by saulgoodman at 9:54 PM on April 6, 2012


saulgoodman, you're absolutely right. I had a sentence in there about dividends to investors as a way to raise capital to sustain or grow the enterprise (to cover more people, create and deliver more products, or pay for those enormous CEO salaries), but in the course of editing to avoid posting an even longer comment than I already did, I think I must have cut it out. Thanks for making that clarification.

I would say that it's not always the case that profit creates inefficiencies or raises the price of products. If a business takes out a loan to help with expenses, then pays that loan off with interest, they don't have to raise prices on existing products for their existing customers if whatever they spent the loan on allows them to recruit more customers or offer more and better products. Similarly, if a company issues stock and pays dividends to its investors, those dividends could be paid out of the profits on new customers or new product offerings rather than by raising prices on existing customers for the products they were already buying. I'm not saying it always works that way, and I'm especially not saying that it works that way for healthcare companies (I have no idea whether it does or not), but I wanted to put it out there for the sake of completeness.
posted by decathecting at 9:14 AM on April 7, 2012


thanks, decathecting.
posted by saulgoodman at 6:24 AM on April 9, 2012


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