HEALTH CARE SPENDING OUT OF CONTROL?

IT’S THE INCENTIVES—STUPID!

SIEPR-FACS CONFERENCESIEPR-FACS CONFERENCE

STANFORD UNIVERSITYSTANFORD UNIVERSITY

SEPTEMBER 10, 2003SEPTEMBER 10, 2003

ALAIN ENTHOVENALAIN ENTHOVEN

DEFINITION OF TERMS

PPOPPO HMOHMO CARRIER HMOCARRIER HMO PREPAID GROUP PRACTICEPREPAID GROUP PRACTICE POSPOS

EMPLOYER A PAYS 90%(2003 FAMILY MONTHLY PREMIUMS)

H PLANH PLAN PREMIUMPREMIUM ER PAYSER PAYS EE PAYSEE PAYS

PPOPPO $1050$1050 $945$945 $105$105

PACCAREPACCARE 750750 675675 7575

BLS CABLS CA 680680 612612 6868

KAISER KAISER 610610 549549 6161

EMPLOYER B PAYS 100%

H PLANH PLAN PREMIUMPREMIUM ER PAYSER PAYS EE PAYSEE PAYS

PPOPPO $1050$1050 $1050$1050 00

PACCAREPACCARE 750750 750750 00

BLS CABLS CA 680680 680680 00

KAISERKAISER 610610 610610 00

EMPLOYER C PAYS 80%

H PLANH PLAN PREMIUMPREMIUM ER PAYSER PAYS EE PAYSEE PAYS

PPOPPO $1050$1050 $840$840 210210

PACCAREPACCARE 750750 600600 150150

BLS CABLS CA 680680 544544 136136

KAISERKAISER 610610 488488 122122

EMPLOYER D DROPPED THE HMOsH PLANH PLAN PREMIUMPREMIUM ER PAYSER PAYS EE PAYSEE PAYS

PPOPPO $1050$1050 840-1050840-1050 0-2100-210

EMPLOYER E PAYS ALL BUT $100H PLANH PLAN PREMIUMPREMIUM ER PAYSER PAYS EE PAYSEE PAYS

PPOPPO $1050$1050 $950$950 $100$100

PACCAREPACCARE 750750 650650 100100

BLS CABLS CA 680680 580580 100100

KAISERKAISER 610610 510510 100100

EMPLOYER F HIRES ONE CARRIER TO OFFER 3 PLANSH PLANH PLAN PREMIUMPREMIUM ER PAYS ER PAYS

80%80%EE PAYS EE PAYS 20%20%

PPOPPO $1050$1050 $840$840 210210

POSPOS 950950 760760 190190

HMOHMO 850850 680680 170170

STANFORD, WELLS FARGO, U.C. AND H-P FIXED AMTH PLANH PLAN PREMIUMPREMIUM ER PAYSER PAYS EE PAYSEE PAYS

PPOPPO $1050$1050 $520$520 $530$530

PACCAREPACCARE 750750 520520 230230

BLS CABLS CA 680680 520520 160160

KAISERKAISER 610610 520520 9090

HOW MANY EMPLOYEES IN EACH?D OR F (SINGLE D OR F (SINGLE CARRIER)CARRIER)

77%77%

A,B,C (HIGH FLAT %)A,B,C (HIGH FLAT %) 99

E (FIXED EE PMT)E (FIXED EE PMT) 11

STANFORD ET ALSTANFORD ET AL 5%5%

OTHER DON’T KNOWOTHER DON’T KNOW 88

FORTUNE 500FORTUNE 500 9.6% w/choice+fixed $9.6% w/choice+fixed $

STANFORD et.al. AFTER TAX

H PLANH PLAN PREMPREM ER PAYER PAY EE PAYEE PAY EE NATEE NAT

POSPOS $1050$1050 520520 530530 318318

PACPAC 750750 520520 230230 138138

BLSBLS 680680 520520 160160 9696

KAISERKAISER 610610 520520 9090 5454

WHY A SINGLE CARRIER?

HISTORYHISTORY ADMINISTRATIVE COSTADMINISTRATIVE COST ADVERSE SELECTIONADVERSE SELECTION EFFECTIVE MANAGED CARE MAY EFFECTIVE MANAGED CARE MAY

NOT EXIST IN THEIR AREANOT EXIST IN THEIR AREA

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

REACTIONREACTION

CUTTING COST w/o CUTTING QUALITY OF CARE I REGIONAL CONCENTRATION OF REGIONAL CONCENTRATION OF

COMPLEX SURGERYCOMPLEX SURGERY DISEASE PREVENTION, EARLY DISEASE PREVENTION, EARLY

DETECTIONDETECTION CHRONIC DISEASE MANAGEMENTCHRONIC DISEASE MANAGEMENT PROCESS RE-ENGINEERINGPROCESS RE-ENGINEERING

CUTTING COST w/o CUTTING THE QUALITY OF CARE II TOTAL VALUE DRUG SELECTION TOTAL VALUE DRUG SELECTION

AND PURCHASINGAND PURCHASING EVIDENCE-BASED PRACTICE EVIDENCE-BASED PRACTICE

GUIDELINESGUIDELINES ELECTRONIC MEDICAL RECORDSELECTRONIC MEDICAL RECORDS CQI: MISTAKES COST MONEYCQI: MISTAKES COST MONEY

CUTTING COST w/o CUTTING THE QUALITY OF CARE III SAFETY CULTURE & ERROR SAFETY CULTURE & ERROR

REDUCTIONREDUCTION ALLIED HEALTH PROFESSIONALSALLIED HEALTH PROFESSIONALS MATCH RESOURCES TO NEEDSMATCH RESOURCES TO NEEDS STANDARDIZE EQUIPMENT, etc.STANDARDIZE EQUIPMENT, etc.

EFFECTIVE MANAGED CARE

COHESIVE GROUPS OF MDs UNDER COHESIVE GROUPS OF MDs UNDER COMMON MANAGEMENTCOMMON MANAGEMENT

SELECT PHYSICIANS FOR QUALITY, SELECT PHYSICIANS FOR QUALITY, EFFICIENCY AND TEAMWORKEFFICIENCY AND TEAMWORK

PHYSICIANS AND PATIENTS THERE PHYSICIANS AND PATIENTS THERE BY CHOICEBY CHOICE

INTEGRATE FINANCING AND INTEGRATE FINANCING AND DELIVERYDELIVERY

EFFECTIVE MANAGED CARE

INTEGRATE FULL SPECTRUM OF INTEGRATE FULL SPECTRUM OF CARECARE

EVIDENCE-BASED GUIDELINESEVIDENCE-BASED GUIDELINES SHARED COMPREHENSIVE MEDICAL SHARED COMPREHENSIVE MEDICAL

RECORDRECORD CQI/TQM: PROCESS IMPROVEMENTCQI/TQM: PROCESS IMPROVEMENT

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

WHAT MUST BE DONE? EVERYONE IN: WIDE CHOICEWIDE CHOICE RESPONSIBLE CHOICERESPONSIBLE CHOICE INDIVIDUAL CHOICEINDIVIDUAL CHOICE INFORMED CHOICEINFORMED CHOICE MULTIPLE CHOICEMULTIPLE CHOICE

EXCHANGES ARRANGE MULTIPLE CHOICE CalPERSCalPERS CALIFORNIA CHOICECALIFORNIA CHOICE PacADVANTAGEPacADVANTAGE

PUBLIC POLICY

INCENTIVES FOR EMPLOYERS TO INCENTIVES FOR EMPLOYERS TO CREATE EXCHANGES AND OFFER CREATE EXCHANGES AND OFFER MULTIPLE CHOICEMULTIPLE CHOICE

ERISA EXEMPTION FOR EXCHANGESERISA EXEMPTION FOR EXCHANGES REQUIRE FIXED DOLLAR REQUIRE FIXED DOLLAR

CONTRIBUTIONSCONTRIBUTIONS LIMIT THE TAX BREAKLIMIT THE TAX BREAK

IMPLICATIONS FOR MEDICARE COST BURDEN WILL BECOME COST BURDEN WILL BECOME

INTOLERABLEINTOLERABLE MEDICARE IS LOCKED INTO FFS MEDICARE IS LOCKED INTO FFS

COSTSCOSTS MUST BE TRANSFORMED INTO A MUST BE TRANSFORMED INTO A

MARKET DRIVEN MODELMARKET DRIVEN MODEL

IMPLICATIONS FOR MEDICARE TRANSITION A LOT EASIER IF TRANSITION A LOT EASIER IF

PRIVATE SECTOR WERE THEREPRIVATE SECTOR WERE THERE TAX BREAK SUBSIDIZES ABILITY OF TAX BREAK SUBSIDIZES ABILITY OF

PRIVATE SECTOR TO COMPETE WITH PRIVATE SECTOR TO COMPETE WITH MEDICAREMEDICARE

WE NEED BOTH PUBLIC AND WE NEED BOTH PUBLIC AND PRIVATE SECTORS IN A MANAGED PRIVATE SECTORS IN A MANAGED COMPETITION MODELCOMPETITION MODEL