• What’s that line about insanity again?

    I was amused by an article in the WSJ yesterday. I even loved the name. “Medical Time Warp“:

    Under pressure to squeeze out costs, some of the U.S.’s biggest health insurers are quietly erecting more hurdles for patients seeking medical care.

    The companies are in many cases reaching back to the 1990s and boosting the use of techniques that antagonized patients and doctors alike.

    Today’s approaches are tweaked, but may feel familiar to many: Insurers are rolling out plans with more restricted choices of doctors and hospitals, and weighing new requirements for referrals before patients can see specialists.

    UnitedHealth Group Inc., Cigna Corp. and others are increasingly requiring doctors to get prior authorization before patients can get certain care such as spinal surgeries.

    Earlier versions of these practices were closely identified with the managed-care era of the 90s.

    Shocked! Shocked, I am!

    Seriously, what did people think insurers were going to do to cut costs? For all the talk of “innovation”, how many awesome new inventions have been created by insurance companies lately? How many new drugs? How many new procedures? None? So why do we think that all of a sudden insurers were going to have a new and awesome way to attack the cost problem?

    Insurance companies can use the tools available to them. Setting roadblocks up makes it harder to get care and reduces utilization. Restricting patients to networks limits choice and allows for better contracts for insurers. Sure, these things piss off patients and providers, but they do work to reduce spending.

    Even the new “progressive”  and “conservative” lists of methods to reduce spending in the health care system are really just collections of standard ideas. We’ve heard them before. I’m not saying they won’t work or that they’re not worthwhile; it’s just that they’re not new.

    The problem isn’t that we don’t know what to do. It’s that we don’t like the tradeoffs involved in any choices. We don’t like giving up anything – ever. So we keep casting about for the perfect solution to the problem. You know, the one where no one is ever denied any treatment, where no one is ever told they can’t see a certain doctor, where no one ever waits at all for elective care, where no one makes any less money, and where no government is involved at all. Oh – and it massively reduces spending and fixes the deficit.

    Let me know when you find it.



    • It’s sort of amazing that we expect health care costs to somehow grow at roughly the rate of the economy when the private health insurance industry consists mostly of publicly traded companies run by CEOs whose livelihoods depend on matching or exceeding the growth of the stock market. Someone’s going to lose here by definition.

      • Insurance companies were valued based on their expected profit growth which is very different than the growth of healthcare spending. However, after ACA and imposition of medical loss ratios, private insurers are subject to similar regulatory incentives as public utilities. Environmentalists have pointed out for years that there is a fundamental flaw in the public utility model because their profits are a fix percentage of their revenues and the revenues are determined by cost of providing energy. When more energy is used or when the cost of energy goes up, public utility profits increase since they are a fixed percentage of the revenues. They are prohibited from gaining (in terms of profits) by obtaining lower energy costs or by encouraging energy conservation (both lower revenue and thus their fixed profit). The same phenomena is now affecting insurers, although for now they have more operational flexibility than a public utility. But in the long run the effect of ACA and MLRs will be to align the interest of HC providers and HC insurers toward having higher growth in HC spending.

        • Like some international systems, we will likely have an oligopoly of MCOs in larger markets–unlike public utilities in the energy sector–and one could envision a competitive landscape that looks to volume, not margin, as the driver. Essentially, a more dynamic market. This assumption only holds however, if market does not overconsolidate–but that is an uncertain proposition.


    • I thought the evidence out there was that most back surgeries for pain had little or no better outcomes than not? Another example is not getting an x-ray for low back pain since the majority of low back pain is muscular in nature (there is a long list of exceptions to the rule).

      • FWIW, the Japanese have figured out some of this. They X-rayed a sample of the population not complaining about back pain and found exactly the same incidence of the indications that lead to disk surgery in folks without pain as those with. (I don’t know if they’ve reduced how much disk surgery they’re doing, though.)

        Still, when my back blew out (couldn’t even sit up to get out of bed) it was nice that the X-ray ruled out bone problems: the pain was worse than the time I broke 4 ribs and felt like bones were grinding against each other, so it sure seemed like something major was wrong. A month of rehab twice a week and I was mostly functional again, and then 2 months with a personal trainer (squats, squats, lunges, more squats, and squats with 40 kg on my shoulders) and my bowling average went up 20 points (to a respectable 215). Go figure.

    • Zach:
      Even the actuaries believe that medical trend will continue, conservatively, at 7%.
      At Milliman, an actuarial firm, in yesterday’s meeting, they could not understand why trend won’t continue, even though it is unsustainable.
      We got them to agree to run the illustrations, with and without trend.
      Expecting costs to go up 7%, and pricing that into the product, simply encourages medical inflation.

      By the way, insurers have had 26 years to provide innovative products. Ever since the passage of IRC section 501(m), which stripped Blue Cross and Blue Shield of its not-for-profit status.
      That wake up call was not heeded by the 501(c)(3) and (c)(4) insurers.
      We hope to revive that wake-up call with an actual product that reduces premiums, over time, by 60-80%.
      We will have Milliman’s paper, product description, and numbers in 3 weeks to provide to insurers who truly want a win-win for insurer and insured, in the long run.
      Don Levit

    • Perhaps we could continue to use the tried and true method practiced by Medicaid programs across the deep South. Make access to Medicaid coverage difficult, complicated, and bureaucratic so that eventually people just stop trying, give up and go away. The only problems with this budget management technique is when the sick go away they don’t seem to get better. It may be faulty logic but is works so well across the South. We don’t want to give it up.

      Demand management is just a nice way of saying rationing isn’t it.

    • Speaking of shining old ideas and calling them new, I’m utterly shocked by the claims made by proponents of ACOs. As I see it, an ACO is essentially an HMO except that ACO patients have no choice/network restrictions. In addition, ACOs will be provided with a global budget on the the basis of a patients presenting diagnosis (what could go wrong?) while HMOs were provided an global budget per patient.

      Say what you will about the HMO model, but I can’t really see any economic argument for why the ACO model is likely to be more effective at controlling costs than the HMO, especially given that a Medicare patient who elects to receive care from an ACO can switch to another ACO or any other provider at any time. Thoughts?

      • By and large, HMOs did not integrate physicians into one payment and practice group. They worked mostly by setting up strict criteria for having procedures and making it more difficult to get in to see specialists. Once a patient got to the specialist, they still received the same fees they would get from other private insurers. (Well, at first they were paying less, but that did not last long.) The specialist still had the motivation to provide more care.

        An ACO has the potential to work more like Mayo clinic or Kaiser. The ACO would receive a global payment. That money would be divided up among providers in the system. The system could reward specialists for doing more procedures if it wishes, but that seems unlikely. The ACO has a bit more chance to work now, I think, since most physicians entering practice now have no interest in self-employment and seem to actively seek employment by large groups



    • What I understood was the problem with HMOs is that experienced doctors with equity and a practice had no incentive to join an HMO, requiring people joining an HMO to give up their doctor and staffing HMOs with younger, less experienced doctors who hadn’t built up a practice.

      It’s possible changes in the economics of running a doctor’s practice or that the increasing cost of insurance and a lower cost of an ACO might change the dynamic and make ACOs more popular.