Managed Care Matters

I recently had the opportunity to meet Dr. Alain Enthoven of Stanford University at his offices in California. One of the topics about which we have corresponded is the relatively new "consumer directed health plans" or CDHPs. Faithful readers will know that I am no fan of CDHPs; my take is they are simply the old indemnity insurance programs with higher deductibles coupled with broad based PPOs.

My problem with CDHPs is rooted in a belief that they will have no real impact on health care costs, except for the very real potential to increase acute episodes and associated costs due to lower compliance with preventive treatment plans. This opinion is backed up with facts, and has been the subject of an energetic debate on this blog.

Dr. Enthoven recently debated Regina Herzlinger on this very subject. Here are a few excerpts from his comments.

1. CDHP will be ineffective at moderating growth of health expenditures in the long run and in improving value for money. Health expenditures are very concentrated on relatively few people. In any given year, some 85% of health expenditure dollars will be spent on people who have exceeded their deductibles or can reasonably expect to do so, for any level of deductibles that is reasonable for most people. For them, the marginal cost of more care will be small, probably near zero, certainly not enough to affect their decisions once they are hospitalized.

2. The main appeal of CDHP is to employers who are eager to find a way to shift costs back onto employees, to "rebalance their compensation portfolios," as benefit consultants say. The costs will be shifted to people with chronic conditions who will usually reach and exceed their deductibles. CDHP, including HSAs, will be great for the healthy and wealthy who can benefit from the tax shelter aspect more than ordinary workers. So CDHP can be expected to grow rapidly.

3. About three quarters of health care spending is now on people with chronic conditions. The emphasis in our health care delivery system needs to be on teaching and motivating these patients to change their life styles and adopt much more healthy patterns of behavior. CDHP is based on the idea that a key to economy is keeping people away from the doctor… CDHP moves in the wrong direction—attempting to keep people away from health care rather than reaching out to support them in improving their lifestyles and managing their conditions to keep them out of the hospital and away from more costly complications.

4. CDHP emphasizes the decisions of informed consumers, a model that may seem to fit well with a population of professors in universities that have medical schools. These consumers are supposed to shop confidently for doctors, negotiate with them over prices and treatments. The information requirements at the micro-decision level are much greater than the information needed to make an informed choice of care system. Medical care is very complex and uncertain. … a mere 25% of Americans are college graduates, it seems unlikely that even much better consumer information than we have today will drive better decision making at the micro level. Only recently, the most famous bypass graft (CABG) patient in America (ex-President Bill Clinton) , living in the state with the best outcomes related information, chose a hospital with higher than average risk-adjusted mortality. The experience in New York was that the publication of such quality related information did not drive changes in market share. What changes in performance there were—and there were some—came from state regulation or the threat of it, and from the professional aspirations of doctors, most of whom wanted to be among the best.

5. CDHP is not accurately named. In that model, consumers direct the spending of the first $1500 (subject to what the insurer will count toward deductibles)—but no economic responsibility for choice for the rest of the spending, the other 85% or 90%. That is, after spending their $1500, all patients go into the cost unconscious wide access PPO, the same undifferentiated delivery system for everyone, rather than encouraging and rewarding them for choosing an efficient delivery system that will do a good job on the other 85% of spending.

6. Finally, there are doctors in this country who take part in systems that accept responsibility to manage total per capita expenditure of their enrolled members. They are physicians in prepaid group practices. Interestingly enough, they do not appear to be eager to add to front-end cost sharing. They do not believe that unnecessary primary care visits are what is driving expenditure growth. They do believe it is costly new technologies, unselectively applied, and chronic conditions not prevented or properly cared for that drive costs up. They may go along with more front-end cost sharing because other forces in society want it, such as employers, but they generally do not see it as easing their workload.

What does this mean for you?

Readers wanted a debate on the merits of CDHPs, and this certainly contributes to the dialogue. I await responses from advocates or critics.