Tag Archives: health insurance

Healthcare Exchanges offer a way forward

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In my last Healthcare blog I argued that because of the structure of our payment system, the network effects of the providers, and reimbursement rules healthcare isn’t a free market. I believe that the exchanges in the Affordable Care Act aka Obamacare, actually offer a path forward that may take us closer to a freer market for healthcare than anything we currently have.

First I need to say that they are not an immediate silver bullet the exchanges only offer a way forward and do not guarantee any changes in the market. Furthermore, if the exchanges do provide the changes I’d like to see it will take time, several years in fact, for those changes to have a broader impact on the market.

What are the exchanges? They are essentially a market place where a customer can select a type of insurance with a specific network that meets their needs. How is this different than what we have had in the past? Well, typically health insurance has been only offered through your employer and you get what they offer. If you don’t have a full time job, you’re basically out of luck and paying a huge monthly premium. The exchanges level that playing field by increasing the pool of people that will be using those types of insurance and allowing across state competition for health insurance. For example, there’s only one Blue Cross Blue Shield provider across all the exchanges in the US. That’s a pretty big change.

Because there is competition based on meeting the needs of the customers there will be much faster feedback to the “plans” as they are called. If members don’t like a specific offering, they won’t make any money and the next year will be forced to make a different offering to attract more members. Furthermore, there will be switching across the plans as people realize they dislike certain features. I believe this will happen for several years until a “dominate” plan design emerges based on the success of those plans. Healthier members, low turn over, and acceptable level of revenues for the insurers. Expect these metrics to be similar to the mobile industry in the US (ARPU, Churn, etc..).

Because of the relatively fast feedback on the products in the market and the possibility to have at least three offerings on the exchange (Gold, silver, bronze), insurers can experiment with different types of plans and benefits. The most popular one at this point is something called Accountable Care Organization, which is somewhat similar to an HMO, but is supposed to be better (we’ll see). ACOs as they are called will have to keep track of the overall quality and re-admission rates with a goal of continually driving up quality of care and reduce re-admissions. Additionally, these are narrower networks of care than a traditional PPO that most people have become accustom to.

That’s fine, but that doesn’t really help with the fact that it’s a networked economy and that there’s still a huge imbalance of knowledge. Well, here’s where the insurers can changes things up. Instead of focusing on the narrow set of providers in their region, they can look to create a network based upon the specific of the member’s conditions and have those members go to the specialty providers that offer the best care for those conditions. Even if they are out of state or out of the country.

Granted this data is a bit out of date, however it’s likely to be accurate, according to the Innovator’s Prescription (pg 96) there are facilities that have become so specialized in certain conditions (hernia repair) that their cost to treat those conditions is $2,300 while a general hospital costs an average of $7,000 and has a much lower re-admission rate than the general hospital. With this in mind an insurer could use these specialty clinics and even fly their members to receive treatment and still save money.

This would dramatically change the shape of the network for the members of those insurers and improve overall care and results. It would also dramatically change the interaction with providers in the member’s region as well. Some hospitals are already feeling the pain in this such as Seattle’s Children’s Hospital (which is suing over being excluded).

I don’t think being exclusive it the right direction, I think creating a strong partnership with members through health coaching and care management can help drive better results and education between the provider, insurance company, and member.

This will require continual experimentation with the types of networks, the way the insurance companies interact with their members to take it from a confrontational interaction (from the member’s perspective), and how the providers plan to engage with insurers. There needs to be incentives to encourage providers to recommend non-traditional recommendations. Incentives to support healthy living for the members. Only experimentation in all of these areas can inform the insurers how to engage better to dramatically improve the health and reduce the cost of our nation.

Healthcare is not a free market

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From the obvious department, amIright? Yes, but not for the reasons you think. Healthcare cannot and never will be a free market. There are several reasons for this that I will elaborate on here.

Healthcare consists of micro-regulation in the form of the reimbursement structure. This is an artifact of two different systems combining to make things worse. First, because the Federal Government is big and has two different programs one for Federal Employees and one of those in need Medicare/Medicaid (I’m combining them here for simplicity), there’s also the VA, but that has much less influence on healthcare. These two programs set the terms on how the government will reimburse or even pay providers for care provided. These are based on Current Procedure Terminology (CPT Codes) and not based upon your diagnosis. Essentially the government sets a price they are willing to pay for a procedure. As one of the largest market players, this influences all of the other payers (IE insurance companies). Many insurance companies use Medicare payment rates to set their own, which drives down the cost of a procedure to the point, in many cases, where it’s below the cost of the actual care. This drive providers to select more expensive and more procedures in many cases to make up the short fall. This payment model also makes it hard for new procedure methodologies to be adopted as they may not be paid for.

Healthcare is a network economy – nearly all care happens close to home. This is why groups like the ACLU argue that driving more than an hour for an abortion is an unnecessary burden on women. Because of the proximity of the majority of care (10.2 miles) this creates a local network of care based on the original provider a patient sees. When you receive a referral, there are a few different routes this can go, best doctor the the referrer knows, another doctor in the same clinic, or in the same care network (such as UPMC in Pittsburgh or Kaiser Permanente in CA). This drives an incentive to send patients within the network leading to mutual referrals or money staying within that care network even if there are better doctors for that specific patient outside of that care network. In addition to the Doctor’s network there is, of course, your insurer’s network which may be in direct conflict with the professional network that your provider has.

Imbalances of knowledge – in typical free markets there’s an assumption that everyone has the same amount of knowledge. In Healthcare, it is abundantly clear that this isn’t true. Most patients have little to no understanding of their diseases when they are first diagnosed. On the other hand, both their insurer and provider has an extensive knowledge of the disease. This limits how well the patient is able to correctly make decisions about their healthcare. It also pushes reliance to the provider whenever there is a disagreement between insurer and provider. The member can’t effectively participate in those conversations about care. Furthermore, there maybe little penalty to the patient if they fail to follow the prescribed course of care until much later where neither the insurer or provider can enforce a change of behavior to reduce costs for the entire system now through treatment rather than later when there are more complications.

These are but three cases that highlight the lack of free market mechanisms in healthcare. Even in cases where a patient wants to seek the best care it’s typically the patient’s responsibility to pay for it if it’s not with in the insurer’s network. In many cases these clinics can reduce systemic costs through lower point of care and lower likelihood of readmission after care.

Over the course of the next few weeks I will discuss Exchanges and their potential, how healthcare can be made more affordable using process improvement tools and other mechanisms. I plan on writing weekly on healthcare. If you have any topics that interest you please comment and let me know!

Tools that will help disrupt Healthcare

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I’ve been reading this really interesting book on healthcare – it focuses on the potential Hows that healthcare can be disrupted. If you aren’t sure what disruption and/or disruptive innovation is then check out my last blog about some of the industries where it’s occurring and you’re likely part of the disruption.

If you buy your own health insurance you may have noticed a new type of insurance. It was new to me whenever I joined my health insurance company in the North West. Neither AMD nor Samsung had similar plans so when I first signed up for it, I was extremely ignorant of what it was and just signed up for something that looked good. This type of insurance is called HDI w/ HSA.

HDI: High Deductible Insurance. This means that you’ll likely have a high deductible (obviously) and will have to pay out of pocket.
HSA: Healthcare Savings Account. This is an account that allows you and your employer to make pre-tax contributions. You will also be able to pay for healthcare tax-free and accrue interest tax free as well. This is great in terms of how much money you actually gain from this. When you pay for a healthcare service like a Doctor’s visit, you’ll have to pay all $150, however, since you didn’t pay taxes on that $150 you end up saving money. Further, your employer can contribute to this account in the same fashion as your 401(k) and your account will be invested in a similar fashion as a 401 (k).

Of course there are some draw backs to this type of health insurance. First, until you reach your deductible you’re going to end up paying out of pocket. You could potentially have a deductible as high as $5,000 which is highly undesirable. Your employer might not contribute to your account, which places more of the burden on you, which sucks.

How can this contribute to disrupting healthcare? Well, you’re going to start really shopping around for your day to day medical expenses. You’re not going to go to a specialist unless you really think you need to. You’re not going to go straight to the hospital for care. You’re going to try to find another place to get the care you need. This will open up the possibility for care givers to provide healthcare in other fashions. This will potentially change the way that insurers will begin to pay out to providers as well.

There is also a push for Accountable Care Organizations, look for those as well, which are paid based on outcomes rather than the type of service being provided. These organizations will help disrupt incumbent firms and will likely capture the attention of insurance agents. I believe that in many cases this is where a lot of Exchange insurance programs are going.

Personally, I’m excited about the potential to work within an insurance company to disrupt the industry. I believe that there are changes that can be made internally, through educating on what metrics are and how to improve based on these metrics. I also believe that we’ll be in a position to help enable providers to be more efficient and effective care.

Healthcare: the Value Stream of care

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In Lean process improvement, one of the first steps you ever take is to walk the process. For manufacturing this means to go down to the floor where the product is made and walk with one piece from beginning to end. This provides the manufacturer insight into where there’s a great deal of waiting for product to come, leading to idle workers, where there’s a lot of inventory piled up – a bottle neck, if there’s a lot of rework – fixing defects like re-etching a person’s name on the back of an iPhone, and how the material flows around the floor. This works pretty well with doctor’s offices too. You can draw a map to all the different places the Dr. walks, the nurses walks, and where the patient walks. Any transportation in a Lean system is waste, so reducing that is important.

Mapping value streams essentially take this to the next level. You map all the major steps that the material that goes into your product step through before and after you. This allows a manufacturer to see all the waste before and after them, enabling them to partner with their suppliers and customers to reduce waste and unnecessary processing. For example, many of us have worked retail. Some times when you do stocking you’ll find shirts that are in bags that are in a box. This is non-value add because it’s highly unlikely that the bag would protect the shirt from getting wet in the case of a flood. So, it’s a waste of plastic for the bag, putting the bags on the shirts, and removing the bags from the shirts are all waste. Which increases the cost of a shirt. However, there’s a beginning and end of the value stream likely starting with cotton and ending with the final sale to the customer. In the case of a can of cola, it takes 319 days from the mining of bauxite to the consumption of the cola with only a total of 3 hours of actual processing of the material (Lean Thinking, Womack).

Value Stream for a can of cola through bottling (Womak Lean Thinking)

Why such a long introduction? Well, the value stream for healthcare is completely different. The beginning is when you’re born and the end is when you die. Otherwise, every activity you partake in impacts your health and the eventual cost of any episode of care. An episode of care is what happens when you directly interact with a provider, hospital, or health insurer. Arguably, these are the exception to your normal behavior and take you out of your normal routine.

Thinking about health in a value stream like this is non-intuitive for providers and insurers alike. As both have accounting practices and treatment plans that focus mainly on the episodes of care and minimize the remainder of the activities a member does. Thinking in this manner places more importance on preventative care, longer term plans for mental and physical rehabilitation, and care networks for long term diseases. This is a serious shift that is starting to occur in many insurance organizations, but aren’t very effective yet. The most effective portion of those three are the networks of patients that have a similar disease, such as Crohn’s Disease.

I believe that looking at care in this fashion will help redesign the manner that care is designed as it will focus on different portions. As my friend Rachel pointed out, behavioral health issues are typically undervalued in the value stream of healthcare. However, with this model long term care issues should be given priorities as they impact the highest percentage of the value stream. It would also force insurers and providers to look at addressing care holistically and providing the best care in the best way when they can. Sending patients to clinics that can quickly treat conditions as cheap as possible.

I’m extremely interested in how this will play out at my company as we think more holistically about value streams for health care. Checkout my last two blogs about health care:
http://scitechkapsar.blogspot.com/2013/11/heathcare-how-insurance-company-decides.html

http://scitechkapsar.blogspot.com/2013/11/healthcare-why-do-we-need-medical.html

Healthcare: Why do we need medical policies?

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In my last blog post, I discussed how US health insurance companies decide what to pay for, what information they need to make decisions on paying for care, and some of the ways they go about making those decisions. I only briefly discussed why medical policies are required and why there’s a lot of complexity around health care. I hope to shed some light on this and help people understand the difficulty that both Providers and Insurers have in dealing with the cost of health care.

First, not all diseases are equal. This one is pretty obvious, but I’m not even talking about how severe the diseases. That’s vitally important of course, but even a “minor” disease can lead to long term impacts to quality of life because we don’t know how to treat the disease. In some of these cases it might just be embarrassing, such as if I eat Gluten and I’m out and about the next day. I’ll probably have some serious issues and won’t be able to enjoy myself while I’m out. There are two reasons for that. One, it’s not really obvious what condition I have. Two, there’s no treatment to allow me to eat gluten other than “avoid” wheat, barley, and gluten. Which in many cases is rather difficult.

This brings me to the second reason why there’s a lot of difficulty – it’s difficult to even diagnose what disease people have. So, for gluten issues you have only a few options, one is a blood test to looking for an immune response to a gluten or to have a colonoscopy to see what sort of damage has been done to your large intestines. Because of this lack of precision, in many cases it can lead to the matching the wrong treatment for the right disease, vice versa, or wrong treatment for the wrong disease in the most extreme cases.

Precision of Diagnosis and Precision of Treatment matrix

In the above picture from “The Innovator’s Prescription” it’s clear which diseases are “better” to have, those in the upper right. While those in the lower left are much harder to treat and have less consistent outcomes. For anything in between the cost and quality of care is really dependent on the experiences of your provider. I believe that this is where insurance companies can add a lot of value. Using medical policies and partnering with providers they can artificially expand the experience of a provider through providing the latest scientific research and results for a treatment and disease interaction. This will help allow providers to focus on care while getting the latest medical news from their network of insurers.

This really puts the model on it’s head as the provider can take advantage of the diverse networks they are part of to learn different components of research based on the focus of those providers. I think that a true partnership between insurers and providers really will drive down health costs.

This complexity is unfortunate, but is truly part of our human condition. One way to reduce costs is to increase the amount of research that pushes care into the upper right from the bottom left. Otherwise, it’s difficult for an insurer to determine which providers are taking advantage of patients and which ones are honest. There’s imperfect information on both sides and the patients pay for it in the long run.