Massachusetts is fixing the fixed health care system: more administration?

by divorced one like Bush

In this debate on how to finance health care, we are hearing about the costs to deliver health care and how to bring them down. Mass is now proposing a capitated payment system that will be government created. It is the latest fix to a herald “fixed” problem. Which begs the question, why do they need to fix it again, yet, still?

The 10-member commission… voted unanimously to largely scrap the current system, in which insurers typically pay doctors and hospitals a negotiated fee for each individual procedure or visit. That arrangement is widely seen as leading to unneeded tests and procedures.
A state commission recommended yesterday that Massachusetts dramatically change how doctors and hospitals are paid…the group wants private insurers and the state and federal Medicaid program to pay providers a set payment for each patient that covers all that person’s care for an entire year and to make the radical shift within five years. Providers would have to work within a predetermined budget, forcing them to better coordinate patients’ care, which could improve quality and reduce costs.
The plan would require significant restructuring of the healthcare system, and some of its components would need legislative approval. Primary-care doctors, specialists, hospitals, and home healthcare agencies would have to form so-called accountable care organizations. Patients would choose a primary care doctor to coordinate their care, mostly within the organization. Insurers would pay the accountable care organization a flat yearly per-patient fee to be divided among the providers.

Read the above again: recommended…that Massachusetts dramatically change… to make the radical shift… The plan would require significant restructuring of the healthcare system, and some of its components would need legislative approval… to form so-called accountable care organizations.

Deja vu?

Dramatically? Radical? Significant? Legislative approval? An entirely new thingy called “accountable care organizations? What? IPA, HMO, PPO, POS, EPO, Self Directed, HSA, Capitated, IME, Primary Care, Fee-for-service, PCP, CAM, and for Massachusetts specifically; Commonwealth Connector just didn’t do it for you. We need more? “Doctor”, “insurer”, “patient”, “government” were not enough?

I want to know, just how much in administration cost will this new fix add? Is this the old promise of managed care, that the savings will accumulate enough to pay for the cost of administration plus a profit? Hasn’t worked yet.

It may work I guess, if we just add enough superlatives in our sentences while we present the new and improved Model T. Or maybe not. From the journal, Medical Care: Managed Health Plan Effects on the Specialty Referral Process:

Results. The percentages of office visits resulting in a referral were similar between the two gatekeeping groups and higher than the no gatekeeping group. Patients in plans with capitated PCP payment were more likely to be referred for discretionary indications than those in nongatekeeping plans (15.5% v 9.9%, P The frequency of referring physician coordination activities did not vary by health plan type. The proportion of patients in gatekeeping health plans within a practice was directly related to employing staff as referral coordinators, allowing nurses to refer without physician consultation, and permitting patients to request referrals by leaving recorded telephone messages.

Massachusetts states: That arrangement is widely seen as leading to unneeded tests and procedures. They were referring to the method of paying a doctor. Yet the study shows that the referral patterns don’t change with changing the method of payment. Well, does Massachusetts think the unneeded tests and procedures are happening without referrals?

Pick the approach, it didn’t change the referral pattern and, systems were set up by those being managed to make the referral process more efficient. So, either the patients need the referral (thus tests and procedures) and none of these money managing approaches are going to ultimately stop it, or the PCP finds a way to keep the traffic moving through the office because the more patients served the more money collected. (Deja vu) It’s a solution to a head-count/ piece-work payment system that still does not get the doc to do the job of applying the knowledge of health and healing to a given person’s presentation. (I’m accepting bets on how long it will be before we hear about the next fixing of the latest fixed Mass health care system. Post your bet in comments.)

This gets us to the one area that has been rolled out many times, but is often excused off as not being reliable as to achieving real savings and thus why we really don’t want a government funded single payer solution (other than our pride of not thinking of it first): Administration costs. It is the old medicare is cheaper than private insurance because of administration cost argument.

We’re hearing of the new plan being modeled on the Massachusetts system. It’s not working as noted by the need to fix it again (though past experience with other states showed it would not work). The fix is more administration costs on top of more administration costs. If they keep going this way, soon a medicare modeled administration system’s costs will be comparable to the private insurer, thus defeating the need to fix health care. So lets just accept that health care costs a lot to administrate, stop wasting time trying to reduce the cost and let the private system stay?


From this article: Costs of Health Care Administration in the United States and Canada, NEJM 2003, we learn that administrative costs have been rising faster in the US than in Canada.

We investigated whether the ascendancy of computerization, managed care, and the adoption of more businesslike approaches to health care have decreased administrative costs.

For the United States and Canada, we calculated the administrative costs of health insurers, employers’ health benefit programs, hospitals, practitioners’ offices, nursing homes, and home care agencies in 1999.

In 1999, health administration costs totaled at least $294.3 billion in the United States, or $1,059 per capita, as compared with $307 per capita in Canada. After exclusions, administration accounted for 31.0 percent of health care expenditures in the United States and 16.7 percent of health care expenditures in Canada. Canada’s national health insurance program had overhead of 1.3 percent; the overhead among Canada’s private insurers was higher than that in the United States (13.2 percent vs. 11.7 percent). Providers’ administrative costs were far lower in Canada.

Between 1969 and 1999, the share of the U.S. health care labor force accounted for by administrative workers grew from 18.2 percent to 27.3 percent. In Canada, it grew from 16.0 percent in 1971 to 19.1 percent in 1996. (Both nations’ figures exclude insurance-industry personnel.)

You know, I think maybe administration has become a growth industry for the health insurance industry? Was this part of the plan to shift us to a service economy?
Understand what the authors are saying here. It’s not just administrative costs related to the job of getting the patient’s dollar to the provider (medicare vs private), it’s the overall costs to the entire health care system as a results of the “administrative” systems the private insurance industry has put in place to “save us money”. No one is immune from paying these costs. They are part of the premiums charged, fees withheld, claims refiled, etc. All this administrative labor to control the costs, and yet the cost of health care keeps rising. Well, if the insurance employees can’t stop the rising costs, then what are we paying them for?

This is starting to make me think that Bruce Webb’s “do nothing plan” for Social Security should be applied to fixing health care. In this case the “do nothing” plan would be to get rid of the paper chase and achieve real savings. That is, do nothing regarding active management of health care costs via administrative systems. Don’t try to manage the doc’s, just let them do what they do and save money by eliminating all the systems that try to manage them. Though, there is a way to manage the doc’s that would not cost us in administration: competition among provider types. Let the various algorithms of applying the knowledge of health and healing compete. Thus, research such as this needs to be considered regardless of one’s opinion of the group studied.

Clinical and cost utilization based on 70274 member-months over a 7-year period demonstrated decreases of 60.2% in-hospital admissions, 59.0% hospital days, 62.0% outpatient surgeries and procedures, and 85% pharmaceutical costs when compared with conventional medicine IPA performance for the same health maintenance organization product in the same geography and time frame.

How about that, a reduction in “unneeded test and procedures” without adding administration costs. Let the doc’s be but, use the clinical practice approach that actually cuts the “unneeded” because it is unneeded. I think there is a lesson here? Something along the lines of free market capitalism only the market is not the types of insurance competing for the patient, it’s the types of doctors that need to compete for the patient.

I got side tracked. Lets stay with the one area for cost reductions: Administration. The authors:

The gap between U.S. and Canadian spending on health care administration has grown to $752 per capita. A large sum might be saved in the United States if administrative costs could be trimmed by implementing a Canadian-style health care system.

Despite these imprecisions, the difference in the costs of health care administration between the United States and Canada is clearly large and growing. Is $294.3 billion annually for U.S. health care administration money well spent?

Well, is it? Did they even ask?