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Patients Need to Kill off Fee-for-Service

While many people blame the fee for service system for many of the problems in the health care system there is a reason why the system developed in the first place and remains the primary payment method in many portions of the country.  Fundamentally, we don’t understand what quality care is. This controversial statement doesn’t imply that we don’t know what substandard care is, we can certainly agree on never events, but actually reducing most medicine to an algorithm, Watson not withstanding, is beyond our reach.

For most goods and services, only understanding the outcome is fine.  We don’t need to completely understand how something works as long as we can repeat the outcome, but the goal in medicine is not to do something but ideally not doing something.  We want health which in many cases is the absence of care not a specific service.  How can someone outside the doctor patient relationship understand if lack of activity is a really good outcome because a patient never needs a doctor vs. a really bad outcome because the patient can’t see the doctor?

Fee-for-service provides a remarkably effective solution for this problem.  A provider is paid for what they do.  If a provider does nothing then the provider is paid nothing. The “natural” incentive for patients to avoid care should limit unnecessary care.  But today’s patient’s don’t have an aversion but an affinity for care.  As patients we think there is a solution to all of our ails and seek out the cure.  Any payment reform has to deal with this issue, patient lead care vs. provider care.  Fee-for-service may not hinder this care seeking but when expanded to patients, through co-pays or deductibles, it at least gives everyone a little skin in the game.

Patients not only want care but choice.  What happens when a specific group of providers have been paid for an outcome, a healthy knee following an ACL surgery, and the patient wants to substitute the physical therapist?  Is it the patient responsibility to pay for the physical therapy? Once again fee-for-service makes this system easy to handle.  Each member of the group is paid for the services that are provided. Patients can slice and dice care seeking their definition of health.

Incentives and choice make for a power inertia built into the present system.  Newer payment models will need provide a convincing reason for behavior change from both provider and the patient. Fee-for-service may induce bad incentives in providers but payment reforms also need to take realistic views of what patients get out of the current fee-for-service system.

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Direct Pay Medical Homes and ACA Part II : Qualified Health Plans

In the first part of the series, I discussed how direct pay medical homes (DPMHs) might integrate in health plans sold to larger employers.  In this post, I’ll discuss the additional challenges to including DPMHs in health plans sold in the individual and small group markets.  These challenges include needing to adequately address how the services and costs of the DPMH are included but also include significant information exchanges between the DPMH and the health plan.

Health plans coordinating with a DPMH in the individual and small group market  face the same challenges of including the services of the DPMH in reporting for the health system as the ERISA plans discussed in the first part. Health plans will need to understand how DPHM services are included in actuarial value calculations. Health plans sold in the Exchanges will also need to include the subscriber fee of the DPMH in the premium of the plan for accurate comparison shopping.

Health plans in the small and individual market also need to collect and pass onto health plans diagnostic information for risk adjustment.  The risk adjustment program in the the post 2014 marketplace will require health plans to report information relating to the risk of their members. Health plans who enroll only low risk members will need to transfer money to health plans who enroll high risk members.  The goal of risk adjustment is to disincentivize health plans from cherry picking healthy members.

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Direct Pay Medical Homes and ACA Part I : ERISA Plans

Direct Pay Medical Homes (DPMHs) are provider lead alternate payment models.  The patient pays the provider directly a monthly fee and in return receives as many basic services such as office visits, basic labs, and X-rays for no additional fee.  While there is a provision in the Patient Protection and Affordable Care Act (PPACA) allowing for DPMHs to be included as a portion of a qualified health plan (QHPs) or insurance products offered on the state based Health Exchanges.  However, there are a variety of hurdles to be overcome before such plans can be developed.  Some of these hurdles include understanding how DPMHs will count for ensuring that QHPs provide robust coverage and the information flows that must flow between DPHMs and insurance companies.

Before looking at how DPHMs could be included in QHPs, it is actually easier to understand how a DPHM might be included in a plan sold outside the individual and small group markets.  These plans are sold to employers and allow for more flexibility.  The key requirement these plans need to meet are the employer responsibility provisions.  An employer needs to offer a plan that covers “60% of the allowed medical costs”  of participants and meets an affordability requirement.  How would a DPMH interact with these provisions?

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Numbered Dictionary Terms in LaTeX

Creating a typesetting for an ordered dictionary in LaTeX is rather the harder than one would expect. LaTeX offers a variety of ways to create lists that highlight the opening phrase or provide for numbering but combining requires a variety of techniques. For example, creating something like this:

  1. Bold a heavy typeface
  2. Italics a slanted typeface

requires a fairly sophisticated approach.
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What’s the Right Primary Care Model?

Wellpoint announced on Friday, a major new initiative in the way primary care providers(PCPs) will be paid.  Sara Kliff highlighted the importance  of PCP payment reform but are Wellpoint’s reforms the right way to pay PCPs?

Broadly, the difficulty with PCP payment is that it is very difficult to measure PCPs effectively.  PCPs basically do three things: provide basic services, coordinating more advanced services, and manage chronic conditions.  Most PCP payment methods to date have targeted one of these functions but aren’t quite able to ensure that all of the roles are compensated. Read the rest of this entry »

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The Service Economy is Here to Stay

The President in his State of the Union address stressed the importance of returning manufacturing jobs to the American economy.  The only problem is that not only has the economy structurally moved away from manufacturing but economic goals have fundamentally shifted.  The big new ideas like cloud computing are fundamentally about how to provide a service not having something.

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MVPs or MVCs?

One of the central problems with the speed of tech innovation is that increasingly the question is not “Can we do something?” but “Should we do something?”.  Since the important questions for teams are not directly about technical ability but how to interface with world, the world is really only the proving ground.  Hence the drive for talent acquisitions where a start-up is not acquired for the product but the product has proved that the team can deliver in the real world.

Pure talent acquisitions were the product is officially ended pose a further problem to the general culture of innovation: jaded users.  Maciej Ceglowski highlighted the problem in a post in December.  Few people want to spend a large amount of time working on somebody else’s glorified senior project.  At the same time there are so many hypotheses to work out when starting a new company that start-ups should have the ability to work on a product first before firming up the financial development of a company. However, if a large group of early adopters took his advice to heart, product first development might disappear. If users start to become more like investors digging in to business models and sustainability before trying or committing to new products then minimum viable products(MVPs) become minimum viable companies(MVCs).

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Whitherto Profit?

In a pair of posts last year, Steve Denning, argued that companies shouldn’t be profit maximizing but instead show focus on delighting customers.In his first post, he highlighted the need for customer delight over shareholder value.  In his second, he noted that companies can only focus on only a single goal and that goal should be customer delight.

The economist in me naturally recoiled at the idea. Companies shouldn’t maximize shareholder value or customer delight but profits.  But why profits? Profit maximization is based on a complex argument about how companies benefit society. Is it possible that the simpler delight customers is actually a better goal?

The most subtle reason for profit maximization is that it helps guide companies to “interior solutions”.  The real world rarely sees companies going to extremes. The iPhone 4s may be the best phone on the market but Apple doesn’t charge a price well above other phones. Why? Profit maximization provides a universal objective function that measures the tradeoffs inherit in pricing and other decisions. Raise the price and the quantity sold will go down. If the profit in the new situation is less than before go back to the old price.

Could a company that was truly focused on focused on customer delight and its metric, net promoter score, find these interior solutions or does customer delight push a company towards extremes?  By itself no. We can all think of products or services that delights us that would delight us more if it were cheaper or better in some way, ah a free iPhone 4s. But Denning has a reasonable response.  Customer delight must be sustainable. Apple can’t just give away iPhones, an iPhone must cost enough not only to produce but also to provide Apple with resources to further delight customers.

This focus on sustainability leads to second leg up for profit maximization.  Finding and delighting customers is hard work.  While existing companies may be able to use revenue from current profits to provide the resources for further customer delight, if customer delight is the goal how does a new company start? Why would some one provide resources to a company that clearly does not provide customer delight because it is just starting and learning to delight customers?  How does one value a company with a net promoter score of 50%? 70%? If a 10% price increase moves your net promoter score from 70% to 50% would that be catastrophic?

Similarly if a competitor has a high net promoter score in that range, why should you compete?  The company is obviously delighting its customers. Sure there may be room to find other people who are not the company’s current customers but would you ever try to attract the competitor’s current customers if you were focused on delighting customers?  A profit maximizer might. If the delighted customers are generating huge profits for a competitor, it makes sense to try to delight them more or maybe even just settle for cheaper product.

Profits still provide a better goal than delighting customers.  Both goals provide for useful interior solutions that stop companies from running to extremes.  Customer delight does not provide a good answer as to why the resources should be given to a new company. Nor does customer delight explain why we see competition in the marketplace.

Delighting customer does have some appeal as heuristic. Profit properly measured needs to include not only this quarter’s profits  but this year’s profits and the next decade’s profits too. Understanding what the right decision that maximizes profit over all these periods is a challenge.  Customer delight is easy to understand.  Does this change make my customers happy without costing me too much profit? If yes, then do it because as Denning points out this seems to be a good marker for maximizing profits.

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Financial Glossary Posted

With financial reform the hot topic, I have posted a new financial glossary.  Let me know if there is something you would like posted.

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Time for Insurers to Put Their Money Where Their Mouth Is

With large scale health insurance reform looking doomed with Nancy Pelosi’s claim on Friday that she doesn’t have the votes to pass the Senate health care reform bill, it is time to return to the black board for incremental reforms.  One of the most promising areas could be payment reform, particularly Medicare payment reform.

Payment reform was the unspecified part of the bill that was supposed to provide long term cost control.  Unlike some backroom deal for the Nebraska Medicaid population, there was a valid reason for payment reform to be unspecified:  nobody has a clear idea about what will work.  The key problem is how do you measure non-events?  How do you reward care providers for not having to perform services in the first place? Read the rest of this entry »

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