Health Affairs Editor-in-Chief Alan Weil recently surprised readers with his comments on “Why I Oppose Payment Reform.”
Those of us who fell for that bit of click bait discovered that, of course, he does not oppose reform. Rather, he wanted to remind us that payment reform is just a piece of the puzzle in driving better value and better quality in American health care and that much more needs to be done. Different readers likely had different reactions, but this Californian saw immediately where he was going…
On a recent trip through wine country with out-of-town guests, a friend quipped how nice it would be to own a winery in retirement. How hard can it be? You pick some grapes, stomp around a wine vat for a few days, put the juice in a barrel, add some yeast, and wait. But those who have ever had a subpar bottle of wine at a not so subpar price know that it’s far more complicated than it seems. As it turns out, the process of winemaking has a lot in common with the American health care system.
While we sometimes know what’s to blame for a bad bottle of wine—grapes ruined by heat, a drought, or the wrong winemaker—these variables are part of an intricate and delicate process that goes into creating a quality product. The same is true about the main culprits behind our broken health care system. We know that misaligned clinical and financial incentives are a problem, but the path towards a solution involves many factors, including market conditions, strong leadership, execution, and collaboration. Successful integration of these components has the potential to create the health system that Americans need and deserve.
The Grapes – Necessary But Not Sufficient
Just as starting with a good grape is a critical element of a quality bottle of wine, appropriate payment incentives are fundamental to achieving a high-functioning, value-driven health care system. It’s obvious that the way we have historically paid for care is wrong. Decades of fee-for-service payments to providers have rewarded volume over value and made “more is better” the default decision in health care.
In the policy world, it has been our longstanding hope that by investing considerable time and effort into developing ever more precise units of payment, these mathematical formulas will be enough to incent the behavior we want. We talk about aligning clinical and financial incentives with Diagnosis-Related Groups (DRGs), bundles, shared savings, and pay for performance without addressing the unintended consequences that can result or focusing on the ultimate outcome: better health. For example, DRGs were implemented over 30 years ago to encourage efficiencies in inpatient care; but only later did we begin to address the explosion in post-acute care and avoidable readmissions to which these formulas contributed. We still, for the most part, focus on the cost and quality of an inpatient stay without ever asking whether it could or should have been avoided.
Our focus on payment incentives is not surprising: money matters. Perhaps more important, however, is that the size and structure of payment is a lever we actually control. Policy analysts and health economists—including this one—have focused too long and too much on getting these payment incentives right, and too little on the circumstances in which health care is produced. My daydreaming, “winemaker-to-be” friends should know the same – the grapes are a necessary, but not sufficient, component of a good bottle of wine. The terroir, or the environment in which the grape is grown, matters just as much.
From Grapes To The Glass
Terroir embodies many things: the climate, soil quality, elevation, and geology of the vineyard. In health care, if we look to payment models alone without considering the terroir—or the environment in which business is conducted—we have failed to consider several key questions:
How concentrated are local insurance and provider markets? Payment reform is unlikely to interest hospitals and provider groups with significant pricing power who are doing well under the status quo.
Are payers and providers in the market willing to go beyond contractual arrangements to engage in real partnerships, evidenced by joint governance models with equal representation? Self-interest works great in commodities markets; collaboration in pursuit of a common goal is more likely to succeed in health care.
Is the regulatory environment supportive of or antagonistic to payment reform? Rigid scope of practice laws and minimum medical loss requirements—just two of many examples—work against integration by codifying the status quo (or worse yet, the status quo of the 1960s).
The Skills And Expertise Of The Grower And Winemaker Matter Too
Payment reform can change the incentives providers face, but does not by itself give them the skills needed to navigate a changing environment. Moving from a “heads in beds,” revenue-center model to a reduced admissions, cost-center model, for example, will require a 180 degree change in how hospital executives think. Hospitals that buy up physician practices to drive revenues are reallocating the spending problem, not solving it. And, instead of focusing on increasing clinical sub-specialization, hospital executives must take a person- and population-based view of care delivery. This will require new knowledge and management styles.
Let’s Not Forget About The Consumers
Whether a wine sells ultimately depends not only on its intrinsic quality but its price. In an ideal world, price and quality match consumers’ perceptions of value. This is true in health care and in wine. We can’t really tell if the price is right for a given bottle of wine by looking at its price or label or whether it is displayed on the eye-level shelf, but we can rely on well-established criteria to guide us to wines that match our tastes and budgets (and we risk little as consumers in making the wrong choice). In health care, consumers have only rarely been sent clear price signals guiding them to high-value, high-quality health coverage and treatments, and even more rarely on an individualized basis.
A Good Finish
A popular solution to our health care problems involves establishing “accountable care organizations” that take on financial risk for a broad spectrum of health care services. My employer, Kaiser Permanente, is the archetype for this approach – we take full financial risk (capitation) for all of our members’ health and health care needs. Having all the “pieces” under one roof enables us to focus on prevention and wellness and to make investments in information technology and other tools that might not make financial sense in other settings.
And while Kaiser Permanente is held up as an exemplar, our own experience shows the challenges that newly emerging care models will need to overcome. Appropriate payment models (the grapes) need to be tailored to local market conditions (the terroir) and accompanied by leadership, execution, and collaboration (grown and blended with skill and an eye to the market). Ultimately, we must maintain a focus on those at the center of our efforts: the patients. Like the producers of good wine, new health care models will need to meet their customers’ expectations of price, quality, and service.
As with cultivating vines in the face of changing climate, technology, and consumer tastes, the road to a new American health care system will be long and winding. But the seeds of change have been planted – now is the time do the work needed to get the product we want.