luft_harold
Richard Kite

Harold

S.

Luft

To change the health care system, combine the collective action potential of government with the flexibility and innovation of well-designed markets

Cover Interview of

In a nutshell

The current policy environment is one in which we must come to grips with the unsustainable increases in health care costs, the unconscionable proportion of the population without insurance, and the uncomfortable reality that our care is not of as high quality as it can be. The implosion of the financial markets means that as a nation we cannot continue to operate and expand a system that has all the wrong incentives. Instead, with the right leadership in government we can fundamentally change the system to make it work better for all involved. The health care system should meet the goals of slower growth in costs, much more equitable coverage, and continually improving quality. Total Cure describes how we can re-align economic incentives and markedly simplify our health care system to make it work the way it should. It is written to be accessible to the informed lay public, yet contains the substance needed by policy makers.

Most proposals to reform the U.S. health care system simply focus on getting more people insured. Total Cure, however, observes that even for those with coverage, the system does not provide the care patients want, the quality they deserve, or the financial protection they need. Physicians are hamstrung by paperwork and arbitrary fee and practice constraints, and costs are rising at unsustainable rates. Providing more access to a failing system is not the solution—the system must be redesigned to work more effectively for everyone. Adopting what may work in other nations, however, ignores American values, Constitution, the existing set of providers, organizations, and patterns of health care.

Total Cure outlines a specific proposal called SecureChoice to overcome these problems. SecureChoice mandates insurance for what requires insurance, using income-based subsidies for all other medical care. Government focuses on that for which government is needed; well-structured market incentives foster flexibility and creativity. SecureChoice uses incentives and information rather than command-and-control.

SecureChoice establishes a single universal coverage pool, or UCP, insuring hospitalization and chronic illness—roughly two-thirds of medical care expenditures. Financing can be through taxes or employer contributions. Inpatient care is paid directly by the UCP, much as Medicare pays hospitals. The UCP, however, pays care delivery teams, or CDTs, composed of physicians and hospitals voluntarily taking responsibility for the quality and costs of care during an episode. They will decide how to allocate funds amongst themselves to achieve the best outcomes. Unlike Medicare, which sets its payments on average costs and arbitrary budget constraints, the UCP bases its payments on the costs of CDTs achieving superior outcomes. SecureChoice is about value, not just cost containment.

Patients freely choose their primary care provider without being locked into health plans. The pool provides monthly payments to offset the costs of managing chronic illnesses. Costs not paid by the UCP are largely associated with: (1) minor acute problems not needing true insurance—but which may receive income-based subsidies, and (2) higher costs reflecting provider-determined fees and practice styles. Physicians can practice however they choose, but may find their patients asking why premiums or fees for their services are worth the extra cost.

“Providing more access to a failing system is not the solution—the [health care] system must be redesigned to work more effectively for everyone. […] SecureChoice mandates insurance for what requires insurance, using income-based subsidies for all other medical care. Government focuses on that for which government is needed; well-structured market incentives foster flexibility and creativity. SecureChoice uses incentives and information rather than command-and-control.”

The wide angle

I am an economist who spent the last 35 years in a medical school training a wide range of post-doctoral fellows and undertaking applied research in an interdisciplinary setting. My economics training inculcated a focus on the role of incentives and constraints. Collaborations with sociologists demonstrated the need to consider organizations. Political scientists highlighted the importance of governance issues and “rules of the game.” Anthropologists and ethicists illustrated how culture and values shape behavior. Work with clinicians made real the uncertainties faced in day-to-day practice. Interactions with administrators led to an understanding of how risk needs to be managed. Quantitative tools demonstrated how large databases can be used to generate information and how crucial it is to focus on the quality of the data being recorded. All these lessons are reflected in the book.

The origins of this work can be traced to the early days of the HIV/AIDS epidemic in San Francisco. Some health plans were trying to avoid enrolling young men who lived in the largely gay Castro District for fear they might have an expensive disease. I heard these stories as a faculty representative on a committee overseeing the university’s health plans. But this was of more than academic or fiduciary interest—our staff members were dying and were being denied coverage because plans were afraid of the economic risks. The challenge I decided to address was how to change payment incentives so health plans would take care of very sick people and even become so proficient at such care that they would gladly attract these patients. This led to years of work on risk adjustment techniques used both to assess quality and to adjust incentives. I eventually came to the conclusion that prospective risk adjustment, the approach generally favored by policy makers, would never be good enough to solve this problem. Instead, we need a mix of ongoing payments for the routine management of chronic disease (as HIV had now become) and separate bundled payments for the infrequent, but very expensive, hospitalizations.

The economics involved in this concept could be presented in a reasonable journal article. That venue, however, would not allow me to address the concerns of real-world policy makers. For them and for others interested in a real system for change, I needed to describe how funds would flow among entities, how to facilitate income-based subsidies to address equity concerns, how to make this work in a practice environment dominated by physicians in solo and small group practices, and how to handle information in a confidential but transparent fashion. Describing an ideal world is (relatively) easy. I felt an obligation, however, to describe how we could plausibly evolve to a much improved system, taking into account the existing laws, political structures, and interest groups. A book, not an article, was necessary.

My policy proposal mixes universality and individualism. SecureChoice blends functions that require government with functions that are performed best by well-structured markets. In the context of the current political landscape, SecureChoice has important features that could be labeled as Red and others best seen as Blue. This may make it a target from both sides—or a reasonable compromise with the best of both worlds.

January 6, 2009

A close-up

To be meaningful, a proposal to reform the health care system needs to be more than just visionary, it must address the complex issues of how the system will actually work. Total Cure provides such details, discussing how funds flow, converting data to useable information, and describing the ways in which the system can be reconfigured. In essence, the book offers a blueprint both for those in the policy realm who can change the system and for those citizens who want to encourage their leaders to make such changes.

The logic and details in the book demonstrate to the reader that an entirely new way to pay for and organize health care is possible. Blueprints, however, are rarely what attract a client to a new house. Chapter 8, therefore, offers what is analogous to the architect’s rendering of the structure to be created from such a blueprint. Here I describe the experiences of a fictitious couple, Harvey and Louisa. After their children have moved out and established families of their own, Harvey is offered an exciting new position on the other side of the country. The couple needs to find new physicians, adapt to new employer-based plans, and compare this new system with the old one with which they were familiar. Their children’s experiences illustrate how the SecureChoice options work for those who prefer highly integrated HMOs as well as for others, such as one son with recurrent depression, who are kept from full-time continuous employment. Given their ages, it is not surprising Harvey and Louisa develop new and more complex medical problems and we see how the proposed health care system works for them. The chapter also provides a picture of how physicians are likely to react to the new freedoms and responsibilities of SecureChoice. The Harvey and Louisa story illustrates the effects of the new system on a typical family, giving the implicit rationale for popular support for a major policy change.

“[…] our staff members were dying and were being denied coverage because plans were afraid of the economic risks. The challenge I decided to address was how to change payment incentives so health plans would take care of very sick people and even become so proficient at such care that they would gladly attract these patients.”

Lastly

Some will ask, “if this is all so simple, why hasn’t it already been done?” The key is that the proposal doesn’t try to solve all our problems with the limited set of tools we have been using in the past. It adds new tools and seizes new opportunities that had not been available heretofore. Insurance for hospitalization and chronic illness is critically important for everyone, hence SecureChoice uses a universal pool for those aspects of care. Insurance is not really needed, nor well-designed, for other types of care. People may want help in smoothing out the costs of such care, but that is more like a credit card than insurance. Income-based subsidies address the affordability problems for those people who need help in covering those costs.

Integrated health plans were created to coordinate and manage care, but they are a solution for only a small fraction of the population and practitioners. New health information systems and re-aligned incentives can allow many of those benefits without forcing independent physicians into large groups or restricting the choices of patients. Employment-based insurance developed by historical accident in the years following World War II; subsequent policy changes inadvertently fragmented the insurance market and sapped its ability to foster innovation in practice. The shift to defined contributions by employers, however, creates the opportunity to build on long-standing compensation structures in a new world in which families have multiple workers, sometimes with several jobs each. The political window of opportunity is opening for changes that are less ideological and combine the collective action potential of government with the flexibility and innovation of well-designed markets. Now is the time to give fundamental reform serious consideration.

© 2009 Harold Luft
Harold Luft Total Cure: The Antidote to the Health Care Crisis Harvard University Press 298 pages, 5 1/2 x 8 1/4 inches ISBN 978 0674032101
luft_book
luft_harold
Richard Kite

Harold S. Luft, Ph.D., is Director of the Palo Alto Medical Foundation Research Institute and Esselstyn Professor Emeritus of Health Policy and Health Economics and former Director of the Institute for Health Policy Studies, at the University of California, San Francisco. He received his degrees in economics from Harvard. His research has covered HMOs, hospital competition, volume, quality and outcomes of hospital care, risk assessment and risk adjustment, and health care reform. An elected member of the Institute of Medicine, he served on its Council, that of the Agency for Health Care Policy and Research, and of AcademyHealth. He was co-editor of Health Services Research.

Cover Interview of
January 6, 2009