January 30, 2019

New Way to Manage Cost and Quality in Health

Charles Wilhelm MD

Charles Wilhelm MD
HealthLinkcorp/Chief Medical Officer and Chairman of Board

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The Federal HMO Act was passed in 1973 to address the problems of escalating cost, lack of quality assurance, lack of consumer input, unequal and inadequate access to care, among other issues that had developed in the last decades after the introduction of the insurance model into the USA system of care. Healthcare cost at that time equaled about 8% of the GDP and were in relation to the GDP 3-5% higher than other countries with similar systems and outcomes.

Pundit’s felt that when and if it reached 10%, the system would implode. Yet, healthcare cost continued to rise at rates significantly higher than the GDP for consecutive years until today they equate to close to 17% of the GDP and close to 50 million people are without financial access to care. This is in-spite of significant penetration into the market by managed care (although declining recently) and the introduction of competing private options.

Why has the HMO movement failed the Government (State and Federal), the largest single payer in the USA for Healthcare in its quest for cost and quality control? The reasons are fairly simple and straightforward.

  • HMO coverage is not politically acceptable in many areas.
  • HMO coverage results in loss of freedom of choice for patients and providers.
  • HMO coverage is equated (not fact) with decreased quality.
  • HMO coverage is associated with high administrative cost (micromanagement and marketing) and high profits.
  • HMO coverage is associated with increased liability for payer and provider.

In retrospect, The HMO movement made two fundamental mistakes in my opinion. First, it made the assumption that you could have a comprehensive benefits package that solved all problems and still be managed cost effectively. Second, it allowed the companies to be for profit in order to raise capital. (The original grant monies (50 million) were only available to not for profits.) Both of these introduced variables that were eventually fatal to the movement.

The insurance model has failed because, among other things, it has removed the natural financial check and balance that existed between provider and patients, and created unsustainable profits associated with resource consumption without documented improvement in medical outcome.

In light of these problems, the following paradigm shifts have and are occurring in the Health Care management arena:

  1. Let’s acknowledge that the Physician must be part of the solution, not part of the problem. I.e. let’s set up a system where the Physician, Patient, and Payer are all on the same side (win-win-win) of the solution. It is accepted that the best (most cost efficient) manager of Healthcare cost and quality is a Primary Care Physician with the proper training, armed with the appropriate information.
  2. Let’s acknowledge that the micromanagement of Physicians with authorizations, etc, is too expensive and creates liabilities and switch to a macro management model based on information at the patient/physician interface, credentialing, education, and proper incentives.
  3. If we are going to expend resources micromanaging, let's micromanage the 6% of the members who consume 50% of the resources (i.e. Disease-Population Management) and focus on the few variables that have been proven to have a relationship to cost-effectiveness and quality.

During my time as CMO of HEALTH SYSTEM ONE, a for-profit corporation in the USA whose principals had more than a century of experience in the managed care industry for the previous six years had been administering a pilot program in the Medicaid population in the State of Florida based primarily on the impact of information alone in a Primary Care gatekeeper model on cost and quality. The program could be visualized as a Primary Care Physician (PCP) empowerment model with information and education. The basic underlying principles of data management are that the plural of data is not information, data must be packaged in a manner to produce change by itself in order to become information, and it must be injected (not available by inquiry) into the patient/physician interface. The company under the brand name of ADMS patented many of the outputs, reports, and systems of this program. The basic components of the model are as follows:

  • A unified patient specific medical data set (EHR.) derived from claims, administrative, and other information made available by the state was created by the vendor and updated periodically. This (EHR) could be augmented with clinical data from various sources. This was transported following the patient to the PCP interface and was been proven to dramatically reduce duplicative services, and improved medical outcomes.
  • Patient specific pharmacy information on the Primary Care Physician’s patients with cost effective alternates was presented to the PCP.
  • Identification and Stratification of Disease Management patients was performed by algorithms and these individual patients and linked with the appropriate Primary Care Physician, evidence based national guidelines, patient educational material, and tracking systems related to gaps in care.
  • Educational sessions were conducted with Primary Care Physicians by bilingual clinicians with patient specific information about proper interpretation and use of information.
  • A pay-for-performance variable management fee program was managed based on self-determined quality indicators and their progression over time.

It is important to note the following limitations of the Pilot Program:

  • The program did not pay claims and had no ability to authorize or deny payment on claims or to change the rate schedule.
  • The membership in the program grew rapidly from 0 to 50K members.
  • The average member length of time for members in the Medicaid program was nine months.
  • Over 50% of the time the information was misdirected because the assigned Primary Care Physician was really not, in fact, the caregiver for that particular patient.
  • Permission to reassign the patient to the appropriate Primary Care Physician was not granted during the six years (i.e. Infectious Disease for HIV) of the pilot.
  • The State of Florida. did not allow a formulary for the pilot program or any change in payment structure for pharmacy benefits.

Data analysis from the 6 years of the Pilot Program showed the following facts:

  • The program on a net basis saved the State of Florida millions of dollars when using previous claims experience to predict future claims. In fact, the net return on investment for the State of Florida was 3 to 1 despite the stated limitations of the project (see above).
  • Primary Care Physician educational sessions decreased global cost on their members approximately 20% when accompanied by appropriate information and conducted by clinical people whom they respected.
  • Pharmacy cost in the Disease Management Population went up over 20%, but global cost over a similar period decreased compared to baseline cost.
  • Quality indicators in the Disease Management Population increased significantly.
  • Global cost on the entire common population showed no escalation during the years despite the limitations of the program and the aging of the population.

The bottom line of the program was that with little administrative cost in relation to managed care, use of current technology present in the Health Care System (no EMR), little limitations on patient choices, use of the current FFS Medicaid rate system, and the assumption that the primary care physician armed with information is the most cost-effective manager of quality and cost, savings comparable to HMO’s were produced.

In summary, a comparable model could relatively easily and cost efficiently be applied to the current health care delivery system with little disruption and significant savings if one were so inclined, in place of a radical overhaul and significant expenses with little or no data to suggest eventual success in the quest for cost control and quality preservation.

Indeed, if a competing Public Plan was the strategy to force the Insurance Industry to adapt to the financial needs of society, the introduction of the following three components inside the plan could accomplish this.

  1. An information PCP empowerment program as described above.
  2. Benefit design focused on only fully insuring those processes that have been proven to be cost-effective (preventive care, ambulatory care, generic drugs, etc.)
  3. An FFS fee schedule that removed the excess profit from the technical component of the health care procedures vs. the cognitive components.

All of these could be components of the Public Plan with relatively little administrative expenses and no significant restructuring of our current Health Care System.

Comments? You can contact me directly via my AdvisoryCloud profile.

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