It all comes back to cost and choice

Those watching the implementation of national health care reform are advised, again, to keep an eye on Massachusetts, which began many of the same programs several years ago. As will be evident eventually at the national level, after you provide universal access to health care by creating a more broad-based insurance program, you then need to focus on two areas: cost and choice. (Remember that President Obama tried to present the case that access, lower costs, and choice were mutually consistent public policy goals. 'Taint so. Eventually, you have to deal with the other two to have a sustainable solution.)

Governor Deval Patrick today offered his legislative proposals in this arena. The key elements are control over provider rates; encouragement for capitation and bundled payment regimes; creation of integrated delivery systems; and transparency of prices and medical outcomes.

I was especially intrigued with the rate-setting aspect of his plan. For some time, I have been suggesting that a return to administrative rate-setting for rates paid to hospitals and doctors was inevitable in a state in which market power had for so long dominated the methodology for establishing those rates. This has been mightily opposed by most industry observers. My point was that rate-setting already existed, but it was in the hands of unaccountable insurance companies.

So the Governor now proposes rate-setting, admittedly through the back door, but substantively so in any event. How will it work? We will not appear to regulate rates paid to providers, except that an insurance company's premiums will not be approved unless the underlying rates paid to providers meet certain conditions. Here's the relevant excerpt from the press release:

This legislation clarifies the [Insurance] Commissioner’s authority to reject premium increases where the underlying provider rates are excessive. Specifically, the Commissioner may disapprove rates that contain provider increases inconsistent with the following criteria:

• The rate of increase in the state’s Gross Domestic Product;
• The rate of increase in total medical expenses in the region as reported by the Division of Health Care Finance and Policy;
• A provider’s rate of reimbursement with a carrier, especially in relation to the carrier’s statewide average relative price;
• Whether the carrier and a contracting provider are transitioning from a fee-for-service contract to an alternative payment contract.

So, whether you call it six of one or half a dozen of another, we are back to rate-setting.

On the choice front, the Governor adopts the religious dogma of pricing discussed here earlier, stating that "the existing fee-for-service payment system is outdated in the medical field." He apparently understands that doing so is inconsistent with consumer choice and thus he "encourages the formation of integrated care organizations (commonly referred to as Accountable Care Organizations or 'ACOs')". As discussed in the last two paragraphs of this post, insurers and providers better tread carefully here. Unless consumers are confident of getting the same or better quality of care from the restricted network serving them, there will be extreme negative feedback in the future. Transparency of outcomes will definitely help, but the power of habit and reputation is long-lasting.

So congratulations to the Governor for taking steps that are consistent with the state's policy of universal access. The key to legislative adoption of these proposals, unfortunately, is likely to be an attempt to minimize discussion of what they would mean for individuals and families, and for doctors and hospitals. Otherwise, they will be viewed as bitter medicine, even if they are in the service of an overall policy objective -- universal access -- that is clearly the right direction.