A Managed Care Model that Works

September 28th, 2010 at 7:43 am | 17 Comments |

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This is the first installment in a series on correcting the mistakes in the Democrats’ health reform bill.  Click here to read the rest of the series.


There’s a joke mentioned whenever a tough problem arises: “It’s easier to get Middle East peace”.  But there is a lesson there for healthcare reform. It comes in the “Road Map” approach where specific achievements occur in a proposed timeline until a final resolution might result. Healthcare reform needs such a road map but the ideological, political and economic agendas seem to prevent plain talk and achievable steps.

What we have had so far is a tepid insurance reform that has focused on the uninsured and has done nothing substantive to control costs. It has advanced a few minor approaches like accountable care organizations and a central commission that will try to control utilization and costs. These are doomed to failure because they attempt to control healthcare in the U.S. from a no doubt soon-to-be-constructed mega-building in Washington, D.C. The system is simply too big and too diverse for central control. European countries have learned this and each one is about the size of one or our larger states. Three hundred million people are simply too many for the government to do anything more than pay bills (see the Medicare system).

The end game is a healthcare system that preserves most individual patient choice regarding which doctor or hospital provides care, has a cost that grows (it must grow) at a rate that approximates the growth of healthcare costs around the world or at least the current general rate of inflation, incorporates effective technology, results in access times that are tolerable, and maintains the ability of the system to care for seriously ill patients as well as or better than any country on earth.

In order for these outcomes to occur, we will need an insurance system that provides some of the features of managed care wherein a health plan takes the economic risk of care in exchange for the opportunity to manage utilization of care. However, the managed care approach is doomed to failure (see managed care from 1992-onward) if the economic risk and the provision of care are separated, for example when an insurance company contracts with a separate provider network. When the payer tries to control the delivery of care, the physician and patient become the adversary of the payer each time there is a patient-physician interaction. Politically, this was doomed.

Rather, the provider network must be an integrated delivery system that is provided a budget and allowed to allocate the money in ways it deems necessary to provide care. It must assume the risk of care as well as the economic risk of funding that care. There are models that approximate this proposed system but they fail to achieve real success since they exist in the midst of another, competing model — our current chaotic system. Successful examples are components of the Geisinger Health Care System in rural Pennsylvania and the Kaiser–Permanente system in the West. The insurance arms of these systems are forced to deal with providers and hospitals outside their system and this markedly limits their ability to create a comprehensive and cost-effective model. Nonetheless, if properly implemented, they are examples of a successful, cost-effective reform of healthcare. But as will be seen, the key to success of this proposed new model is that there are competing systems available for the patient/consumer so innovation and quality are maintained.

That is the destination of the road map for healthcare reform. But how to get there? What will need to be in place for these systems to operate, compete, and provide high quality and eventually, more affordable care?


This is the first installment in a series. Click here for Part 2.

Recent Posts by Stanley Goldfarb



17 Comments so far ↓

  • Oldskool

    Three hundred million people are simply too many for the government to do anything more than pay bills (see the Medicare system).I would really like to see the Medicare system for myself since the people who have it are super-glued to it. It must be pretty damned good to have so many devotees.

  • mikewaz

    You want a managed care model that works? Look at the VA. Good old reliable socialized medicine. The best quality care in America for a price per patient less than the average private sector hospital system.

  • dgkerns

    Unless and until the independent and astonishingly wasteful third-party for-profit brokerage of health care is abolished, a high quality and justly distributed health care system in America will not be economically feasible. You can do this via the Kaiser/Geisinger approach (nonprofit insurance integrated with the private provider organization) but how can you create a thousand Kaisers and Geisingers to meet the medical and economic needs of the country? Far more practical is the maintenance of the current free-market private provider “system” but financed by the public at-large, i.e. “Medicare-for-all.” Taxpayers need to have clarity that insurance premiums are private sector taxes paid by employers and/or citizens – with 25 to 30 cents on the dollar going to administration, marketing and profits of private brokers. Pay your “premiums” (via taxes) to Medicare and you get 97-98 cents on the dollar for actual health care. The country is burning hundreds of billions of dollars a year in service of insurance companies and their political sponsors.

  • CD-Host

    I don’t agree at all. I think the best approach is a 2 tier one. What we have right now is the regulations and perverse incentives of a socialist system with all the inefficiencies and marketing costs of a small scale capitalist system.

    Public health requires public action. We can’t have dead bodies of the uninsured not being removed, human corpses spread disease very effectively.

    So we need a tier that provides basic healthcare free of charge to everyone. I’d say the best cutoff are those services that can provided cheaply via. mass distribution. A system that focuses on efficiency not choice or competition. This could be single provider but certainly should be single payer. Probably a mixture makes the most sense with the system paying say 85% of the single provider’s costs of a covered procedure to any facility that provides it. This single provider system should be targeted at the poor not the middle class.

    We then have a alternate system which is cash based (not insurance based) and moderately regulated to provide additional services. A fully capitalist system. I imagine if people are paying cash the waste that occurs in our current system where the majority of health expenses are incurred by people in their last years or two of life disappear.

    Basically

  • balconesfault

    Three hundred million people are simply too many for the government to do anything more than pay bills … Rather, the provider network must be an integrated delivery system that is provided a budget and allowed to allocate the money in ways it deems necessary to provide care. It must assume the risk of care as well as the economic risk of funding that care. … The insurance arms of these systems are forced to deal with providers and hospitals outside their system and this markedly limits their ability to create a comprehensive and cost-effective model.

    So the argument seems to be that a national healthcare system is unmanageable because of size … and smaller systems are inefficient because they’re forced to work with providers and hospitals in competing systems.

    Are we then just screwed?

  • Bebe99

    CD-Host, I agree that making some health services cash-based is a good cost controller. I think we do need a system that first covers the inexpensive minor illness and preventive-health visits and tests, to encourage folks to keep themselves healthy. Beyond preventive health we need a cash or partial cash system (progressively priced for low incomes) to discourage frivolous overspending and unnecessary tests. But above that we need catastrophic coverage for serious illness which can and does bankrupt too many Americans. Three tiers of coverage. The middle one being the one that the upper and middle class can buy extra coverage for as is now done to fill Medicares coverage holes. I have been utilizing a health savings account which is a great incentive to control costs, unfortunately there are no preventive dr. visits included. That is the only thing I would change to make this a really good idea for all but the chronically ill.

  • easton

    What we have had so far is a tepid insurance reform that has focused on the uninsured

    Tepid? Tell that to the 30 million American who will finally be able to access our health insurance system. Damn elitist. I got mine, screw the poor.

    And as Oldskool points out, this 300 million number is horseshit. Japan has UHC and pays around half of what we pay with better outcomes. Does Dr. Goldfarb ever choose to acknowledge its existence? Of course not. Japan? Ja-P-an? What is that? And the notion that Japan can easily handle 127 million but 300 million somehow becomes absolutely impossible is beyond idiocy. And look at this line: “European countries have learned this and each one is about the size of one or our larger states.” What state in America has 82 million people (like in Germany), or 62 million (France) or 61 million (UK) California has 37 million people, and Texas only 24 and it goes down from there to 19 million in NY.

    Here is a brief blub from wiki about Japan:

    Public health insurance covers most citizens/residents and the system pays 70% or more of the medical or drugs costs with the remainder being covered by the patient (upper limits apply).[7] The monthly insurance premium is paid per household and scaled to annual income. Supplementary private health insurance is available only to cover the co-payments or non-covered costs, and usually makes a fixed payment per days in hospital or per surgery performed, rather than per actual expenditure. In 2005, Japan spent 8.2% of GDP on health care, or US$2,908 per capita. Of that, approximately 83% was government expenditure

    This is all bs mucking around the margins. Study what works in other countries, like Japan, and replicate it here.

  • CD-Host

    Bebe99 –
    On top of the cash system we can layer on a catastrophic coverage system with high deductibles and large copays which could then be offered cheaply. As for medicare i think we need to get rid of it. That offers great coverage at well below market costs to people for whom it makes the least sense to offer good coverage too.

  • baw1064

    This is all bs mucking around the margins. Study what works in other countries, like Japan, and replicate it here.

    Ah, but aren’t you forgetting to pay lip service to American exceptionalism? We can’t just do what works in other places, we’re Americans!

  • easton

    balconesfault, Goldfarb is an ideological hack and like all hacks ignores systems that contradict what he believes. Google all of the articles that have analysis of the Japanese Health care system by Goldfarb, there are none. Frankly it is disgraceful.

    Let me state a few pluses to their system, they pay half of what we do, have better outcomes, and their corporations do not have to behave like social welfare agencies. Nintendo focuses on building WII’s and games, they don’t have employees dedicated with dealing with health insurers. When I used to work in the states, my boss used to spend weeks every couple of years negotiating with various health care insurers trying to get the best deal. Absolute waste of time and productivity, our people in HR also had to waste time all year long dealing with the crap. Company provided health insurance is insane, imagine if we had company provided schooling for our kids, or company provided police, or company script to be used only at a company store. This is nuts.

    Since Goldfarb is an elite living outside the system he has no idea the costs on business this entails.
    There is no effective choice for most Americans and won’t be as long as we keep it the way it is. You work for this company you get this plan, no choice (or if you are lucky have some options, but only for elites like Goldfarb, and as to the uninsured, well they are just subhumans in his eyes since providing access to care is not relevant in his eyes)

    But I guess this is where Democrats and Republicans part, Democrats believe basic health care is a right, and an affordable one if one studies other systems, and Republicans think it is a luxury that belongs only to the elites, and when it is accessed by the non elites must be cost controlled as much as possible to ensure profits.

  • easton

    baw1064, ha, right. Sharron Angle was screeching that “America has the best healthcare in the world” and no one in the national media contradicts her. We are at like 38 in outcomes. Republicans still want to live like it is 1950 when America was king of the world.

  • balconesfault

    balconesfault, Goldfarb is an ideological hack and like all hacks ignores systems that contradict what he believes.

    It’s not only that – he seems capable of ignoring the entirely self-contradictory nature of his own posting.

    As I pointed out – Goldfarb starts with the premise that a national comprehensive integrated system can’t succeed because it’s too big … then moves to this assertion that smaller comprehensive integrated systems are viable options … then points out that smaller comprehensive integrated systems can’t really achieve cost-efficiency because they’re in competition with other comprehensive integrated systems.

    I think that if Goldfarb were to follow his own logic, eventually he’d come to the conclusion that the national comprehensive integrated system is the best tool for reaching maximal cost-efficiency. But that conclusion runs contrary to his first axiom, that such a system is not manageable. So as a result we’re fed tripe.

  • mikeoliphant

    In respect to Employer mandates, it appears from http://www.BenefitsManager.net and http://www.AHealthInsuranceQuote.com analysis that employers nationwide will be assessed a $2,000 penalty for every employee not offered group health insurance or commonly referred to employer sponsored health insurance. Does this include part time employees that traditionally didn’t qualify or buy health insurance in the first place because of the cost vrs. Hours worked? How in the world is an employer going to absorb this cost? So if an employee doesn’t want to participate in paying their share, the employer is penalized $2,000?

  • LauraNo

    Funny but my health care provider and my insurance manage to do an excellent job of co-ordinating my care, they don’t need to do ‘better’ than they are because they couldn’t. And they are not ‘centrally planned’. Each province in Canada does it the way they see fit. So much bs out there that the American citizen is sure to stay the most ill-informed people in the western world and a bit of a laughing stock for believing the right-wing demagogues and propagandists.

  • SpartacusIsNotDead

    Goldfarb (part 1): “[Healthcare reform] has advanced a few minor approaches like accountable care organizations and a central commission that will try to control utilization and costs. These are doomed to failure because they attempt to control healthcare in the U.S. from a no doubt soon-to-be-constructed mega-building in Washington, D.C.”

    Goldfarb (part 2): “[T]he provider network must be an integrated delivery system that is provided a budget and allowed to allocate the money in ways it deems necessary to provide care. It must assume the risk of care as well as the economic risk of funding that care.”

    I guess when you’re programmed to thoughtlessly criticize everything Democrats do you won’t recognize that a lot of what the Dems are doing is stuff you say they should be doing.

  • balconesfault

    mikeoliphant: Does this include part time employees that traditionally didn’t qualify or buy health insurance in the first place because of the cost vrs. Hours worked?

    http://www.hrbits.com/2010/08/30/healthcare-reform-qa-for-employers-%E2%80%93-part-2/

    The health reform package does not require employers to provide coverage for employees working on average less than 30 hours per week (“part-time”). Part time employees are only used to determine full-time equivalents for purposes of determining if the employer is subject to the employer mandate. This is done by taking the total number of monthly hours worked by part time employees and dividing by 120 to get the number of “full time equivalent” employees.

    The healthcare reform package does not require employers to provide coverage for seasonal employees. Seasonal employees are workers who perform labor or services on a seasonal basis (no more than 120 days during the taxable year and retail workers employed exclusively during holiday seasons). They can be excluded from the threshold count to determine whether an employer has over 50 employees to be subject to the employer mandate and eligible for the premium credits. They are also excluded from the calculation of the employer’s annual wage level for purposes of premium credits.

  • PracticalGirl

    “The end game is a healthcare system that preserves most individual patient choice regarding which doctor or hospital provides care, has a cost that grows (it must grow) at a rate that approximates the growth of healthcare costs around the world or at least the current general rate of inflation…”

    Too bad Dr. Goldfarb spent 12 years in medical trade school and skipped the business classes…Health care costs as well as insurance costs are always going to grow faster than the current general rate of inflation, as long as the major providers are public companies whose profits MUST be tied to an agressive growth schedule to satisfy investors. Deal with reality, Stanley, please.