Is Public Policy Changing The Practice of Medicine?

By John Goodman

Health Affairs Blog, May 21, 2014

At the time the ACA was enacted, the belief that health care delivery in the United States was about to be radically transformed was widespread. “We’re going to find out what works and then go do it,” said Barack Obama. Doctors will learn to practice medicine like engineers, predicted Atul Gawande. The profession will be dominated by Accountable Care Organizations (ACOs), said Karen Davis, and doctors will be rewarded for lowering costs and raising the quality of care. Only through ACOs can we achieve low-cost, high-quality care, said Elliott Fisher. Fee-for-service medicine is the problem, we were told, and the solution is bundled care. The idea that we should buy on value, not on volume, was a sentiment often heard.

Four years on, these predictions have been far from the mark — to put it charitably. We have spent tens of millions of dollars on demonstration programs and pilot projects investigating coordinated care, integrated care, managed care, pay-for-performance medicine, electronic medical records systems, etc. The result? Three separate Congressional Budget office reports have concluded that none of this is working, or at least not working very well.

In what I am about to say, I am relying heavily on input from Larry Wedekind, CEO of IntegraNet. This is a firm that operates independent physicians associations under contract with Medicare Advantage plans and commercial insurance plans. These groups go under different names but let’s settle for Integrated Delivery Networks, or IDNs. As far as I can tell, the IDNs managed by IntegraNet are at the cutting edge.

The most significant innovations in medical practice are usually produced by entrepreneurs, and although they may be motivated by many factors, entrepreneurs tend to flourish where there is significant downside financial risk and significant upside potential for profit. That’s why some of the most interesting things going on right now are in IDNs managed by entrepreneurs, in contrast to the activities of hospitals, insurance companies and government agencies.

Ironically, the ill-advised medical loss ratio (MLR) regulations have inadvertently had a good effect — they have spurred insurance companies to shift the management of care to doctor organizations, and thus increased the sphere of opportunity for entrepreneurial medicine.

The original ACO regulations were so onerous that entrepreneurs (and some of our best medical centers) avoided them altogether. But now it appears that the Obama administration is moving in the direction of using Medicare Advantage-type (risk adjusted) formulas to pay ACOs. This will attract more entrepreneurs to the ACO market and, if the administration continues the trend, ACOs could actually become more attractive to enrollees than the MA plans.

IntegraNet and other independent physician organizations got a big boost when the Obama administration imposed a medical loss ratio (MLR) regulation on participating insurers. Under the regulation, health insurers must spend at least 85 percent of their revenues on “medical care,” leaving no more than 15 percent for administration, overhead and profit. If the health insurer contracts with an IDN, such as the one managed by IntegraNet, however, all the fees paid to the IDN count as “medical care” — no matter how much the IDN spends on administration.

Politically, we are about to come full circle. Although Barack Obama ran against the MA plans in the 2008 election, and although many Democrats regard Medicare Advantage as unhealthy “privatization,” this is the only place in all of Medicare where the president’s promise is being realized: practitioners really are finding out what works and they are doing it. Unwilling to endorse the MA approach, the administration created a new entity called an ACO. But the ACO model is likely to become viable only to the extent that ACO plans look more and more like MA plans. If all goes well, we are likely to end up with a reformed Medicare that looks very much like something the president campaigned against when he promised to reform the health care system. And if that happens, the President and Rep. Paul Ryan may discover that they see eye to eye on just about everything relating to Medicare!

As a result, IntegraNet can do something Humana, Aetna, and UnitedHealthcare cannot do: By becoming efficient and improving patient health, it can lower its medical costs, say, to 70 percent of premium income and reap much of the remainder as profit — to be shared with the doctors and even the insurers (!).

What Should Be Done?

4.  Eliminate all restrictions on profit. If we want entrepreneurs to find solutions to our problems they need to be able to take big risks and reap big rewards. The value to society of successful innovation in this area is enormous. If entrepreneurs get rich in the process, more power to them. The benefit they will create for the rest of us will far exceed any profit they manage to earn for themselves.

http://healthaffairs.org/blog/2014/05/21/is-public-policy-changing-the-p…

John Goodman, the “Father of Health Savings Accounts,” has long been an advocate of private, free market solutions to our health care dysfunctions. Let’s look at how Medicare Advantage (MA) and Accountable Care Organizations (ACO) fit into his concepts of entrepreneurial medicine.

He chides Democrats for opposing privatization of Medicare through private Medicare Advantage plans, and yet indicates that the Accountable Care Organizations established by the Affordable Care Act are apt to end up much more like his favored Medicare Advantage plans. As he says, we could end up with President Obama supporting ACO transformation into Paul Ryan’s premium support model of privatizing Medicare.

It is important to look at why he thinks that is a good idea because he is quite frank in representing the views of those who support privatization.

Look at what he has to say about Integrated Delivery Networks (IDN). Insurers are allowed to keep 15 percent of premiums for administration and profits. But Goodman suggests that insurer payments to an IDN could be considered to be 100 percent health care. Yet the IDN could have its own 15 percent or more cut for administration and profits. As he states, “By becoming efficient and improving patient health, it can lower its medical costs, say, to 70 percent of premium income and reap much of the remainder as profit — to be shared with the doctors and even the insurers (!).” Entrepreneurialism trumps patient care!

In case we think we might misunderstand what he is saying, he clarifies that. “Eliminate all restrictions on profit. If we want entrepreneurs to find solutions to our problems they need to be able to take big risks and reap big rewards. The value to society of successful innovation in this area is enormous. If entrepreneurs get rich in the process, more power to them.”

We can thank John Goodman for being very frank in his discussion. In doing so, he has exposed the true thinking of those who oppose the government and support market approaches to health care.

I’ll take the government, thank you.