HEALTH CARE SPENDING OUT OF CONTROL? IT’S THE INCENTIVES—STUPID! SIEPR-FACS CONFERENCE STANFORD UNIVERSITY SEPTEMBER 10, 2003 ALAIN ENTHOVEN

DEFINITION OF TERMS PPO PPO HMO HMO CARRIER HMO CARRIER HMO PREPAID GROUP PRACTICE PREPAID GROUP PRACTICE POS POS

EMPLOYER A PAYS 90% (2003 FAMILY MONTHLY PREMIUMS) H PLAN PREMIUM ER PAYS EE PAYS PPO$1050$945$105 PACCARE BLS CA KAISER

EMPLOYER B PAYS 100% H PLAN PREMIUM ER PAYS EE PAYS PPO$1050$10500 PACCARE BLS CA KAISER

EMPLOYER C PAYS 80% H PLAN PREMIUM ER PAYS EE PAYS PPO$1050$ PACCARE BLS CA KAISER

EMPLOYER D DROPPED THE HMOs H PLAN PREMIUM ER PAYS EE PAYS PPO$

EMPLOYER E PAYS ALL BUT $100 H PLAN PREMIUM ER PAYS EE PAYS PPO$1050$950$100 PACCARE BLS CA KAISER

EMPLOYER F HIRES ONE CARRIER TO OFFER 3 PLANS H PLAN PREMIUM ER PAYS 80% EE PAYS 20% PPO$1050$ POS HMO

STANFORD, WELLS FARGO, U.C. AND H-P FIXED AMT H PLAN PREMIUM ER PAYS EE PAYS PPO$1050$520$530 PACCARE BLS CA KAISER

HOW MANY EMPLOYEES IN EACH? D OR F (SINGLE CARRIER) 77% A,B,C (HIGH FLAT %) 9 E (FIXED EE PMT) 1 STANFORD ET AL 5% OTHER DON’T KNOW 8 FORTUNE % w/choice+fixed $

STANFORD et.al. AFTER TAX H PLAN PREM ER PAY EE PAY EE NAT POS$ PAC BLS KAISER

WHY A SINGLE CARRIER? HISTORY HISTORY ADMINISTRATIVE COST ADMINISTRATIVE COST ADVERSE SELECTION ADVERSE SELECTION EFFECTIVE MANAGED CARE MAY NOT EXIST IN THEIR AREA EFFECTIVE MANAGED CARE MAY NOT EXIST IN THEIR AREA

WHY CHOICE OFFERING EMPLOYERS SUBSIDIZE MORE COSTLY CARE? HISTORY HISTORY “GIVEAWAY-TAKEAWAY” DILEMMA “GIVEAWAY-TAKEAWAY” DILEMMA FEAR NEGATIVE EMPLOYEE REACTION FEAR NEGATIVE EMPLOYEE REACTION

CUTTING COST w/o CUTTING QUALITY OF CARE I REGIONAL CONCENTRATION OF COMPLEX SURGERY REGIONAL CONCENTRATION OF COMPLEX SURGERY DISEASE PREVENTION, EARLY DETECTION DISEASE PREVENTION, EARLY DETECTION CHRONIC DISEASE MANAGEMENT CHRONIC DISEASE MANAGEMENT PROCESS RE-ENGINEERING PROCESS RE-ENGINEERING

CUTTING COST w/o CUTTING THE QUALITY OF CARE II TOTAL VALUE DRUG SELECTION AND PURCHASING TOTAL VALUE DRUG SELECTION AND PURCHASING EVIDENCE-BASED PRACTICE GUIDELINES EVIDENCE-BASED PRACTICE GUIDELINES ELECTRONIC MEDICAL RECORDS ELECTRONIC MEDICAL RECORDS CQI: MISTAKES COST MONEY CQI: MISTAKES COST MONEY

CUTTING COST w/o CUTTING THE QUALITY OF CARE III SAFETY CULTURE & ERROR REDUCTION SAFETY CULTURE & ERROR REDUCTION ALLIED HEALTH PROFESSIONALS ALLIED HEALTH PROFESSIONALS MATCH RESOURCES TO NEEDS MATCH RESOURCES TO NEEDS STANDARDIZE EQUIPMENT, etc. STANDARDIZE EQUIPMENT, etc.

EFFECTIVE MANAGED CARE COHESIVE GROUPS OF MDs UNDER COMMON MANAGEMENT COHESIVE GROUPS OF MDs UNDER COMMON MANAGEMENT SELECT PHYSICIANS FOR QUALITY, EFFICIENCY AND TEAMWORK SELECT PHYSICIANS FOR QUALITY, EFFICIENCY AND TEAMWORK PHYSICIANS AND PATIENTS THERE BY CHOICE PHYSICIANS AND PATIENTS THERE BY CHOICE INTEGRATE FINANCING AND DELIVERY INTEGRATE FINANCING AND DELIVERY

EFFECTIVE MANAGED CARE INTEGRATE FULL SPECTRUM OF CARE INTEGRATE FULL SPECTRUM OF CARE EVIDENCE-BASED GUIDELINES EVIDENCE-BASED GUIDELINES SHARED COMPREHENSIVE MEDICAL RECORD SHARED COMPREHENSIVE MEDICAL RECORD CQI/TQM: PROCESS IMPROVEMENT CQI/TQM: PROCESS IMPROVEMENT

EFFECTIVE MANAGED CARE MUST BE A MATTER OF CHOICE FOR DOCTORS AND PATIENTS

WHAT MUST BE DONE? EVERYONE IN: WIDE CHOICE WIDE CHOICE RESPONSIBLE CHOICE RESPONSIBLE CHOICE INDIVIDUAL CHOICE INDIVIDUAL CHOICE INFORMED CHOICE INFORMED CHOICE MULTIPLE CHOICE MULTIPLE CHOICE

EXCHANGES ARRANGE MULTIPLE CHOICE CalPERS CalPERS CALIFORNIA CHOICE CALIFORNIA CHOICE PacADVANTAGE PacADVANTAGE

PUBLIC POLICY INCENTIVES FOR EMPLOYERS TO CREATE EXCHANGES AND OFFER MULTIPLE CHOICE INCENTIVES FOR EMPLOYERS TO CREATE EXCHANGES AND OFFER MULTIPLE CHOICE ERISA EXEMPTION FOR EXCHANGES ERISA EXEMPTION FOR EXCHANGES REQUIRE FIXED DOLLAR CONTRIBUTIONS REQUIRE FIXED DOLLAR CONTRIBUTIONS LIMIT THE TAX BREAK LIMIT THE TAX BREAK

IMPLICATIONS FOR MEDICARE COST BURDEN WILL BECOME INTOLERABLE COST BURDEN WILL BECOME INTOLERABLE MEDICARE IS LOCKED INTO FFS COSTS MEDICARE IS LOCKED INTO FFS COSTS MUST BE TRANSFORMED INTO A MARKET DRIVEN MODEL MUST BE TRANSFORMED INTO A MARKET DRIVEN MODEL

IMPLICATIONS FOR MEDICARE TRANSITION A LOT EASIER IF PRIVATE SECTOR WERE THERE TRANSITION A LOT EASIER IF PRIVATE SECTOR WERE THERE TAX BREAK SUBSIDIZES ABILITY OF PRIVATE SECTOR TO COMPETE WITH MEDICARE TAX BREAK SUBSIDIZES ABILITY OF PRIVATE SECTOR TO COMPETE WITH MEDICARE WE NEED BOTH PUBLIC AND PRIVATE SECTORS IN A MANAGED COMPETITION MODEL WE NEED BOTH PUBLIC AND PRIVATE SECTORS IN A MANAGED COMPETITION MODEL