Trends in Physician-Led Healthcare Reform, Cutting Costs Without Sacrificing Patient Care, and a Suggested Public Option

Mike Sacopulos: Ken Terry is a journalist and author who has covered healthcare for over 25 years. Ken has served as technology editor of Medical Economics Magazine. His latest book is Physician-Led Healthcare Reform: A New Approach to Medicare for All, published by the American Association for Physician Leadership. Ken also recently had his article, “How a Public Option Could Hold Down Costs,” posted on the Health Affairs blog.

Ken Terry, welcome to SoundPractice.

Ken Terry: Thank you. Glad to be here.

MS: Your book, Physician-Led Healthcare Reform: A New Approach to Medicare for All, presupposes that the U.S. has adopted Medicare for All. Why did your Health Affairs blog or article post focus on the public option as a vehicle for restructuring healthcare delivery?

KT: Well, I had written another Health Affairs blog post with David Milstein in response to some experts who proposed Medicare Advantage for All instead of Medicare for All. And one expert even suggested that perhaps Medicare Advantage plans could compete with a public option. So, that got me thinking. What if the government were to create a model in which independent physician groups competed within a public option? And I realized that we must find a way to get from where we are now to a truly value-based payment system. Although I haven’t done any computer modeling, I believe that the incentives that I proposed in my article could achieve that and it could be achieved within a mixed public/private system. This means we wouldn’t have to wait for Medicare for All.

MS: Interesting. You’ve proposed that there be financial risk assumed by providers. Why must providers be placed at financial risk to reduce healthcare costs?

KT: It’s human nature. If you get paid more for doing more, chances are that you’re probably going to do more in many cases if the patient isn’t in any harm, and the patient might even benefit. And some experts believe that the best way to reduce waste and cut costs is to prepay providers. The California delegated risk model and Kaiser Permanente have shown that that approach can work under the right circumstances, but the California model has never really caught on outside of California.

MS: You have physicians at the lead of your idea and not healthcare systems or hospitals. Why do you think that is the case, or why do you believe that healthcare systems and hospitals are not able to lead the way on healthcare containment cost?

KT: Well, hospitals and health systems have been resistant to prospective payment because it runs counter to their business model. Hospitals try to maximize inpatient admissions and outpatient services, including expensive tests and procedures. They also seek to wring as much money as possible out of private payers, partly by merging to increase their negotiating leverage. While hospitals employ hundreds of thousands of doctors, their main goal is to guarantee referrals, not to prevent admissions. And they can also earn more if they charge facility fees for their outpatient services. Although, it looks like CMS will finally be able to enforce its site-neutral payment rule. In essence, providing value to payers is not on the radar of most hospitals.

MS: No disagreement here from me, Ken. Don’t most physicians seem resistant, though, to prepayment and still cling to a fee-for-service model? How could a public option be used to change that?

KT: If the government negotiated payments with providers in a public plan, chances are they wouldn’t be too much higher than Medicare rates. So doctors would get lower payments for a big chunk of their business unless they joined one of the at-risk competing groups (that I talk about in my article). If they did that, they could share in the savings that they generate. It would be similar to what accountable care organizations (ACOs) do in the Medicare Shared Savings program, but on a much larger scale. Now many doctors would still oppose this approach because they’re used to fee-for-service and they’re uncertain about how well they would do if they were prepaid. But, if it was presented to them as a fait accompli, my guess is that some of the more entrepreneurial doctors would step up to the plate and form the kinds of groups and ACOs they would need in order to garner bonuses in the public plan.

MS: What are the political prospects for a public option on the agenda of President Biden’s . . . what he proposed during the election campaign?

KT: Well, it’s uncertain, but it’s not out of the question. Although President Biden hasn’t done too much on healthcare so far, except to expand certain aspects of the Affordable Care Act, he might campaign for a public option if Democrats could increase their majority in Congress. And it’ll certainly continue to get pressure from the left wing of his party, especially if health costs go up sharply. It might force his hand.

MS: There’s a question that disturbs me: “Is healthcare just too complex for a legislative body?” I mean, with so many moving parts it hardly seems to be a good match for perpetually campaigning politicians in the era of a sound bite. Tell me I’m wrong, give me some hope.

KT: Yeah, well, the late Uwe Reinhardt from Princeton used to say that healthcare reform is always around the corner, just not in my lifetime.

The United States is an outlier in terms of our inability to provide universal access to healthcare and the high costs that we pay.

What I believe, at the core of me, otherwise I wouldn’t be interested in healthcare reform, is that someday there will be significant reform because there has been in other countries. The United States is an outlier in terms of our inability to provide universal access to healthcare and the high costs that we pay. And I think at some point, the cost pressures will get so high, not only on employers, but also on employees and individuals, that the public will cry out that something has to be done. And at that point, I think that, hopefully, politicians will turn to the best ideas out there and come up with a solution that will work.

MS: That gives me some hope, thanks. So, in your Health Affairs post, you say that competition among financially at-risk physician groups is essential to reducing costs without cutting corners on care. Why would that work better than competition among health insurers?

KT: Well, competition should be between providers rather than insurers for two reasons. First of all, when physician groups are at risk, they can’t just pass on cost increases to payers as insurance companies often do. Secondly, no insurer has ever delivered care with a single patient; only physicians know how to cut waste without harming patient care. I believe that if physician groups compete on quality and costs, they’re more likely than private insurers to cut costs judiciously because, at the end of the day, they’re accountable to their patients.

MS: That’s a good point. How could consumers or patients be motivated to choose the highest- quality, lowest-cost groups, and what effect would that consumer choice have?

KT: The simplest method is to vary a consumer’s insurance premium, depending on their choice of a primary care physician. If they chose a doctor in a lower-cost, high-quality group, they would pay a lower premium than if they chose a doctor in a high-cost, low-quality group. And an experiment in Minneapolis a generation ago established that this approach would induce consumers to choose the higher-quality, lower-cost groups.

MS: Based on the numbers in your article, healthcare costs growth could not even be reduced to the rate of general inflation, unless most doctors participated in the public option care delivery system, but nearly half of physicians currently work for hospital systems that would be reluctant—at best—to participate. Now, in your book, you solve the problem by requiring hospitals to divest their employed practices. How would you overcome the same challenge within the public option approach?

KT: Well, let’s assume that a public plan can offer lower insurance rates to employers and individuals because it pays providers less, and it incentivizes them to improve outcomes and reduce costs. Well, if that happens, more and more employers are likely to give their employees a sum of money and tell them to enroll in the public plan. Most of these people are going to be cared for by the competing at-risk groups. And so, as those groups take market share away from the hospital employed groups, the hospitals would be compelled to let their doctors participate in the prospective payment system.

MS: I follow. That makes sense. What are some of the precedents to your approach, and which do you think could contribute to its success?

KT: Well, the most recent precedent is the CMS Direct Contracting program, but it’s too early to tell how that program will turn out. Going back further, there’s the California delegated risk model that I referenced earlier, and that has a number of features that would help my model succeed. These include delegation of utilization management and credentialing to at-risk groups, as well as the availability of claims data that would help them manage that risk. In addition, the group report cards used in California would work well in the public option marketplaces. The third precedent is the MSSP, the Medicare Shared Savings Program. And as in that program, the groups in my model would take two-sided risks for a portion of the total cost of care and would share in the savings.

I would capitate primary care, but I don’t think these groups should take full professional or global risks, because that would just be too much risk. Now, over the past decade, the MSSP has saved Medicare only about two and a half billion dollars, but until the last couple of years, only a small portion of ACOs took downside risk, and many ACOs have only dabbled in the program. I believe that in a public plan, as I describe it, if ACOs and groups took downside risk from the outset and they had sufficient incentives, they could save a lot of money for the government.

MS: In effect, you’re proposing a system of managed competition in which the government sets the rules. Give us some perspective, what kind of rules would be required in order to make the mechanisms work properly?

KT: Well, in order to get large-scale participation, a wide range of groups, independent physician associations and ACOs, would have to be allowed to participate. All groups would need a certain number of primary care doctors. And because specialties are unevenly distributed, the group would have to allow other groups to refer patients to their specialists at in-house rates. The groups would have to be big enough to take significant risk, but not so big that they would swamp the competition. They could be owned by any type of entity, whether it was physicians, hospitals, insurers, investment firms, or even pharmaceutical chains. The physician-owned groups would probably need some government subsidies at first. And they could also contract with the same kinds of infrastructure firms that support many ACOs, and they take a portion of their shared savings payment.

MS: We’ve been talking about physicians and healthcare systems, but clearly insurance companies will fight any kind of public option tooth and nail, Ken, because they view it as unfair competition with the government, when the government can obtain better rates from providers than they can. Let’s assume that Congress passes a public option bill—what might happen to private insurance in the long run?

KT: That’s a good question. If things go as I predict, private insurers would have a decreasing share of the employer market. But they would continue to serve Medicare and Medicaid where they’ve shown an ability to manage care pretty well within a budget. This might produce the strange situation in which private insurance companies would get most of their income from public programs while the public plan would take over the private market. In the long run, though, I think that the public plan would become dominant because it would be more efficient. So private insurance might fade out. But on the other hand, if insurers keep buying up physician groups, they might own a good chunk of the delivery system by that time.

MS: Now, physicians are only part of the equation, right? Even though physicians provide or order most patient care, they don’t control all components of healthcare cost growth—drug prices come to mind, right? Drug prices are determined largely by pharma companies, for instance, and social determinants of health and having a significant role in population health. What are your ideas for cutting costs in these arenas?

In terms of social determinants of health, the main question is how much is society willing to pay to improve the health of the poor?

KT: Well, I don’t think you can reduce drug prices by fiat because the industry is simply too powerful. But we could devise a system of value-based pricing, so that the prices of new drugs would be limited by the value they provide in healthcare rather than what the market will bear. Pharma companies will certainly howl about this, but we must set some limits. In terms of social determinants of health, the main question is how much is society willing to pay to improve the health of the poor? To judge by the eligibility restrictions in the Medicaid programs of many states, it appears we may not be willing to pay that much. On the other hand, hospitals and health systems can certainly earmark a large percentage of their community benefit dollars to help the poor find adequate food and housing, and a community-based approach to managing high-risk patients could improve outcomes and reduce costs. Now, a lot of this is being done already, but I think it could be done more intelligently and consistently. And I think that prepayment of providers might ignite the spark to get it done.

MS: Do you think that there is any change that needs to be made to the medical school curriculum that would help providers feel more comfortable in the long run with what you’re suggesting?

KT: Well, a couple of things come to mind. One is that, and this has been a long-standing criticism of medical schools, they don’t really give doctors any business education at all, which was probably more important in past years when most doctors ran their own businesses than it is now, when most of them are employed. But what I’m talking about is a reversion, more to that earlier state, except with larger groups, but with physicians in control of their own destiny. So it would certainly help if they had some business education. And then there’s another type of course, called Systems Thinking, that some medical societies have advocated. I think it was a part of the recertification criteria, at least in Internal Medicine. And there, the idea is to try to understand how the decisions that doctors make are affected by and affect the way that healthcare systems operate.

I’ve been sort of monitoring the physician leader community of the AAPL, and one recent thread talked about how doctors really have very little control over their health systems. It’s rare if any doctors are on hospital boards and if they are, how they usually don’t have much influence. So I don’t think you can look at medical education in a vacuum; a lot of it depends on which way the healthcare system goes. But I think that medical schools could be more proactive in terms of preparing physicians for the future.

MS: Well, certainly your vision of a physician-led healthcare reform is one that deserves much thought. We will put a link to your book in the show notes. And I thank you very much for your thoughtfulness today. Thanks too for working on problems that are important to all of us, not only those that are listening, because we’re all going to be patients. This is so important to our Nation.