Health Care: End the 'Perverse Incentives'

In most of the U.S., health care can be confusing, uncoordinated, and expensive. What if we were to emphasize cooperation, communication, and prevention?

Imagine you were a diabetic whose doctor developed a customized plan to help keep the condition in check. Imagine a team that monitored blood sugars remotely and called you periodically to see how you felt. Imagine your doctor knowing when you experience a diabetic episode, with an appointment automatically scheduled to address it that day. Imagine seeking more intense treatment at a hospital whose staff already knew your history and could discuss follow-up care with your doctor. Here's the best part: Imagine getting all this for less than you pay today.

Sound unbelievable? With health-care costs rising every day, consumers—and even providers—have reason to be skeptical that a utopian world of good care at a good price could ever exist. But this is the future promised in Accountable Care Organizations (ACOs), a new model designed to reduce spending by improving health, eliminating inefficiencies, and preventing costly complications.

There are two premises underlying ACOs that make them unique and unlike past efforts to contain costs, including Health Maintenance Organizations (HMOs). First is the need to change the way we pay for health care. Today's health-care providers are paid by the number of office visits, tests ordered, and procedures performed, regardless of whether these services yield a better outcome. The system rewards volume: the more services consumed, the higher the payments. This approach has had disastrous effects, including runaway spending and insurance premium increases that reached an estimated 17.3 percent of U.S. gross domestic product in 2009, the largest one-year increase in history.

ACOs propose to fix this system of perverse incentives. Rather than paying for treatments when people get sick, caregivers in an ACO would be held accountable for keeping patients well. Their reward is a portion of the funds that are saved when people improve their health and require less care.

CHEAPER TO PREVENT THAN TO AMPUTATE

Diabetic care today costs insurers an average of about $30,000 a year, most of which goes toward treating expensive complications. An oft-cited example of today's absurdist approach to health care is that many insurers will not reimburse $150 for someone to get a routine foot checkup, but nearly all will pay $30,000 for a foot amputation, an all-too-common remedy in advanced cases of diabetes. In the ACO model, there would be a significant investment in the preventive care needed to avoid the expensive amputation, obviating the hospital visit. In such a scenario, average diabetic care costs could be reduced to $20,000. The ACO could keep a chunk of the $10,000 savings as a new form of reimbursement. Moreover, doctors who achieve such quality enhancements would be able to earn bonus pay for better care and reduced costs. The reward is no longer based on consumption, which HMOs tried to restrict. Instead the incentive is for doctors to make decisions to improve a condition, which benefits patients, insurers, employers, and doctors alike.

A second break with the past is the onset of the notion that we must overcome fragmentation in health care. In our current system, people are passed among doctors, specialists, clinics, hospitals, and others, often without coordination of care or discussion by providers. This frequently means that vital information is unavailable when a clinical decision needs to be made, leading to duplicate or conflicting treatments, waste, and unnecessary expense. The Congressional Budget Office estimates that up to 30 percent of all health-care dollars are wasted in unnecessary or duplicate care, with no corresponding benefits in outcome.

In contrast, when working as part of an integrated ACO, doctors, specialists, nurses, long-term care providers, and others are all part of a united team that provides seamless access to care, any time, anywhere. That sort of teamwork will ensure that clinicians have the information they need to provide effective treatments to improve health.