By Austin Frakt, PhD
JAMA Forum, June 21, 2012
In a new article in the Annual Review of Economics, Katherine Baicker, Amitabh Chandra, and Jon Skinner point out some of the ways Medicare has helped solve a coordination problem among private plans:
“It is natural to ask why private providers have not adopted ACOs [Accountable Care Organizations, groups that give coordinated health care and for whom payment is tied to achieving health care quality outcomes and goals that can lead to cost savings] or more bundled payments on their own. This remains a puzzle. One explanation is that it is a coordination problem—all insurers may want to adopt larger bundled payments, but no single insurer can make the transition. This is certainly consistent with the historical record on the adoption of prospective payment for hospital care. Once it was introduced in Medicare, private plans were quick to adopt it. Similarly, private hospitals were quick to use the federal government’s efforts to measure quality of care even though nothing stopped them from forming consortiums to measure quality before these federal efforts.”
Their points are generally valid in that it’s common for private plans to adopt certain types of payment reforms and quality monitoring after these measures are introduced in Medicare but not before. Nevertheless, there are some examples of ACO-like contracts made by private plans ahead of the Medicare counterparts. And that doesn’t count the failed attempts at capitation (establishing a dollar amount to cover the cost of health care services provided for an individual during a specified length of time) by private insurers and provider groups in the 1990s. I don’t think this invalidates the general point the authors make. It seems Medicare has solved a coordination problem among private insurers.
Indeed, some of the things Medicare will do are properly viewed as public goods. All but a handful of large, dominant health plans cannot convince large hospital systems to accept a new form of payment system. But Medicare can. What health plan will do its own comparative effectiveness analysis to determine which interventions work best for managing a condition? Medicare will or could. The results of both of these types of innovations, and others, will be public information and can benefit all plans and all consumers.
History shows that Medicare has done some things private plans seem unable to do, and then private plans voluntarily copy Medicare. But it goes the other way too.
For example, private plans have innovated in ways that traditional Medicare has not. Managed care, consumer-directed health plans, prescription drug benefits, and catastrophic coverage all exist or existed in the commercial market before adoption by Medicare (if ever). In some cases, the Medicare program, though not the traditional fee-for-service arm of Medicare itself, followed private plans’ lead, adding managed care plans (Medicare Advantage) and a prescription drug benefit (Part D), for example.
There does seem to be a coordination problem among private plans that Medicare solves. Likewise, the private sector sometimes does a better job of designing health plan options. That both plan types, private and government, play a worthwhile role needn’t be shocking or blasphemous. The fact that they both play worthwhile roles ought to be widely acknowledged. Naturally, it often isn’t—least of all, it seems, in our politically charged health policy debates.
Comment:
By Don McCanne, MD
Austin Frakt makes the point that both Medicare and the private health insurers have each independently introduced innovations that then can help the other when these innovations are shared. But when you look at the respective innovations, it becomes obvious which innovator it is that truly serves the interests of patients.
Medicare attempts to create greater value when using taxpayer and premium dollars for the payment of health care services. Thus you see innovations such as the adoption of prospective payment for hospital care. We benefit both as taxpayers and as patients.
Look at the innovations of private insurers that Frakt mentions: managed care, consumer-directed health plans, and prescription drug benefit plans. These designs take away choice of health care professionals and institutions, choice of drug benefits, and also erect financial barriers between the patient and health care. Here the process of innovation is not used to benefit patients, but rather is designed to enhance the business model of the intermediary intruder – the private insurance plans.
Frakt points out that these private innovations are being used by Medicare in the private Medicare Advantage plans and in the private Part D Medicare drug benefit. True, but these are terrible innovations to introduce into Medicare because they waste funds and reduce choice while increasing administrative complexity. Medicare’s adoption of private innovations has been a bad thing, not a good thing.
Coordinated care is certainly beneficial and should be expected regardless of whether Medicare or private insurers are paying the bills. There may be instances where bundling of payment would be appropriate, just as capitation has been appropriate in selected circumstances. If it benefits both taxpayers and patients, it would be appropriate. The risk is that the business mind of the private insurers will most likely morph accountable care organizations into intermediary intruders designed to benefit third party payers, likely at a cost to patients. That is not a desirable innovation.
Frakt does make the important point that Medicare does not provide catastrophic coverage, whereas some private plans do. Medicare certainly should as well. But that’s not really a private plan innovation; it’s merely a benefit that should have been included in Medicare in the first place. That is one more reason why we advocate for an improved Medicare for all, rather than merely for a universal expansion of the existing Medicare program.
Government can do it. In fact, it is leading on the catastrophic coverage benefit by making it a requirement through the Affordable Care Act. Innovation in the private sector benefits the private sector. Innovation in the government serves the public interest. Trading public and private innovation is not in our interest when we come out the losers.