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Restructure Medicare & Medicaid: Economic Factors-Possible Solutions
1) Cost-Sharing
Cost-sharing can help control demand for a portion of healthcare by creating
incentives for consumers to shop for most cost-effective treatments (although those
benefits would be somewhat mitigated by the skew in health spending toward high
users).
Once again, a Math Problem: Consider a routine physician office visit in which a provider
suggests and / or patient requests various tests, procedures, etc.
Patient #1 covered by a plan with a $20 co-pay (i.e., a flat fee regardless of the level or
intensity of care performed during the visit)
Patient #2 covered by a plan with a 10% co-insurance for in-network care (i.e.,
responsible for 10% of the aggregate billed charges)
Clearly, patient #2 will become more sensitive to necessity and cost of care beyond a
level of $200 of total healthcare services
Note that deductibles drive similar dynamic as a co-pay: once the deductible is met, the
member has little or no "skin in the game"
Only 14-18% of employer-sponsored health insurance plans use pro-rata cost sharing (i.e.
co-insurance in example #2 above). Most (77%) insurance plans only use a co-pay (in
example #1), which gives consumers little incentive to shop the most cost-effective treatment
path.
KP
CB www.kpcb.com
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2009
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Restructure Medicare & Medicaid: Economic Factors-Possible Solutions
2) Reimbursement Reform
Reimbursement reform could help shift drivers of payment from quantity of
care to quality of care. The following list provides a few options to consider.
Bundled Payments: Providers get a fixed budget to treat an episode of care (i.e. a broken
hip). Exceeding the budget means providers absorb additional costs; staying under it lets
provider benefit from savings.
Examples: PROMETHEUS Payment System¹, Medicare Acute Care Episode
Demonstration²
Global payment system³ (i.e., capitation): Providers are paid up-front to provide care that their
patient receives over a period, incentivizing them to manage costs and quality. This global
payment is adjusted periodically to reward accessible and high-quality care.
Pay for performance4: Reimbursement for care providers varies, based on various quality and
efficiency measures such as discharge rate and readmission rate.
Accountable Care Organizations (ACOs): Provider groups accept responsibility for the cost
and quality of care for a specific population of patients5
The recently enacted Patient Protection and Affordable Care Act includes regulations
supporting the creation of Accountable Care Organizations
Other models often discussed to improve coordination / efficiency and reduce costs: 1)
integrated delivery systems; 2) multispecialty group practices; 3) physician-hospital
organizations; 4) independent practice associations; 5) virtual physician organizations
Source: 1) Cutting Healthcare Costs by Putting Doctors on a Budget, Time 1) Adopted in Rockford, IL in Jan 2010 2) Medicare Demonstration Project Overviews,
www.cms.gov/demoprojects 3) Recommendations of the Special Commission on the Healthcare Payment, Commonwealth of Massachusetts 4) Pay for
Performance Incentive Programs in Healthcare, Geoffrey Baker 5) How the Center for Medicare & Medicaid Innovation Should Test Accountable Care
Organizations, Stephen Shortell, Lawrence P. Casalino and Elliott S. Fisher for Health Affairs, July 2010
KP
CB www.kpcb.com
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