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Harold: Should Medicare fundamentally change the way that providers are paid to accelerate
this momentum?
Michael: My answer to that is yes, and in fact, Medicare is in the process of doing
that in ways that I think still need a lot more development. From a broader point of
view, the current Medicare system pays providers in a very fragmented, fee-for-service way.
There's an enormous amount of waste that gets incentivized within that type of system. More
to the point, the incentive for individual providers or provider organizations to be
efficient doesn't exist. Providers don't have an incentive to adopt programs that are costly
to implement, and may keep people away from the doctor or away from the hospital because,
of course, under the current system they get paid when people go to the doctor, or go to
the hospital. New payment models which pay in a global budget way, or in a global payment
way, enable providers to capture some of the fiscal benefits of being efficient.
I don't want for a moment to make it appear like this is a panacea for our healthcare
system problems. There's a lot of organizational challenges that such payment models create,
and there's concern that providers will provide too little care, as opposed to too much care,
so quality measurement becomes exceptionally important in this world.
When you compare the alternatives of a fee-for-service system that's fragmented and no incentive
for efficiency, and well-known deficiencies in quality, to a system where providers are
held more accountable, with incentives to both be efficient and to improve quality,
I think that the latter approach likely is a better long-term strategy than the approach
that we've been on.
It is so difficult to get the prices right for the vast number of services that we're
paying, across the vast number of sites of care that are delivering those services.
Harold: Let me ask you a question though, especially because many people have seen this
article by Steven Brill on the cover of the latest Time magazine, where he looked at basically
the prices that are paid. Much of what you were just describing, and much of our whole
conversation, is basically about controlling costs by reducing wasteful use of services.
We haven't really talked much about how much is paid for that, and the unit price of that
MRI, or whatever that service is done. It seems to me that countries that have controlled
medical care costs have really put a lot more pressure on prices than the United States
has done.
Michael: Certainly we could do that, and of course, in Brill's article, he notes that
Medicare, our public payer, has in fact achieved lower prices than many private payers pay.
In fact, a lot of that article was talking about the prices that are paid by a relatively
small number of people that don't have insurers shopping for them.
The premise of your question is true, that we tend to pay more in the United States,
and of course, as an economist it would be wonderful if we could get more and pay less.
My general sense is that the efforts to achieve efficiency can't and won't achieve if all
we do is slash our payment rates. There's a bunch of other reasons in the United States
why we pay more. In fact, we pay more for a whole series of occupations. Professors
get paid more.....
Harold: I find that to be an excellent policy.
Michael: Right. The entire returns to education in the United States tends to be higher, and
we put a lot of burdens on our providers as well. I think a strategy of constantly cutting
prices is one which sounds wonderful, but I'm not sure that we would be able to live
in the current environment, for the type of care that we want, if we just slashed prices.
I think that a world in which you give provider systems the incentive to purchase care efficiently,
so you're always going to find examples of things that are overpriced, but of course
you'll find other examples of things that you might consider to be underpriced.
Part of the problem is the goods that we're buying aren't really the thing that we care
about, the health of a patient for a period of time, or the success of treating a particular
condition. We tend to purchase our anesthesia separately from the way we purchase the surgery,
separately from the way we purchase the hospital that had the OR, separate from the three follow-up
visits, and the several other things that are going on. We have this very fragmented
system, and it's easy in that system to get the prices wrong. Even in Medicare, there's
reasonable evidence that we don't get the prices right, although as the Brill article
pointed out, we do pay a lot less in Medicare.
Harold: Let me ask you a question. One of the reasons why we pay high prices for some
things, if you think about, say, in your neck of the woods, Partners has such incredible
prestige and market power and social standing, that they can charge pretty high prices. It
does seem to me that some sort of countervailing pressure from the demand side has to be part
of the response.
Michael: There's a reasonable case for pressure from the demand side, and some type of price
regulation in various ways, and, of course, in Massachusetts there's a lot of attention
to that, but Partners provides an excellent service. They're considered quite high quality,
and we could have a long discussion, which I'm not prepared to have now, about whether
they're worth the extra money ...
The broader point, I think, is as long as you're setting prices for individual services,
it's very hard to tell. For example, if you were to look to, say, see an organization
that was charging more for a knee replacement, you might want to say, "Let's pay less for
knee replacement." But if the organization you're paying less to requires you to come
back for a redo more often, then it's problematic. Or you don't know if the knee replacement
was needed anyway.
There are many different challenges. One advantage of changing the nature of payment, as opposed
to just the payment rates, is it allows you to set your payment in a manner where you're
purchasing something more closely to what we want from the system, which is health for
a person with a particular medical condition, or health for a person over some particular
period of time.
The issues of market power, certainly outside of Medicare, are certainly important ones,
and we have a long way to go to figure out how we want to deal with that type of market
power. I think we're going to see a lot of pressure placed on providers and their prices,
at least their growth in prices, over time. Even if we could get the prices exactly right,
I'm not sure we would do ourselves a lot of favors if we maintain the general fragmentation
across the entire system.
Harold: By the way, my stepmother had a bypass at Mass. General. $72,000, which was a pretty
impressive price...
Michael: Was that the charge, or the actual amount that was paid?
Harold: I believe that it was the charge.
Michael: Depending on her insurance company, of course, the price could be a lot less,
but nevertheless, go on.
Harold: One of the things that struck me was that she did feel that she got beautiful care.
She's in her 80s, and it's been a tremendous boon to her peace of mind, knowing she basically
feels like she's got some of the best healthcare in the world backing her up. [25:06] I think
the public conversation about healthcare, the fact is that we really have a tremendous
amount of respect and admiration for the work that's done to repair our hearts, and things
like that. We tend to view the insurance companies as the "bad guys" in a lot of the public conversation.
One of the issues around cost control is, at some level we have to make some trade-offs,
and we really don't like to talk about that. We like to talk about the evil insurers.
Michael: No, absolutely. That's of course what economists do, is they focus a lot on
trade-offs. I would say first, I think insurance companies have been excessively vilified.
That's not to justify all the things that insurance companies have done, but the issue
of prices for example, that you were talking about earlier, is not an insurance company
issue as much as a healthcare provider system issue. The healthcare providers are the ones
that are delivering the care that we want them to deliver, although of course, not always
as efficiently as possible, and we want to try and maintain the highest quality of care
at the lowest possible price.
Again, that's an easy thing to say when I'm talking to you on a blog. It's a hard thing
to manage, even amongst quite well-meaning people. The challenges are that we recognize
that for a whole range of reasons, the government doesn't do a particularly efficient job when
they try and intervene in a whole variety of ways, and we could talk about pros and
cons of government managing of things.
On the other hand, the private sector as well is subject to a number of inefficiencies that
we could discuss at great length, including high prices, which you've mentioned.
Inevitably, there's going to be some sort of balance between public and private roles,
and there's going to be some role for regulation and some role for markets. There's going to
be some trade-off between, as we started, a very expensive benefits that allow providers
to do what they want and pay for it, removing anybody's incentive to be particularly cost-conscious,
and a sense in which we're overly cost-conscious, and people are being denied care that we really
think is important.
Because health is so complicated, with thousands and thousands of services, each of which may
be appropriate in a whole range of different clinical conditions, it's nice to think we
could micro-manage what happens, but my personal opinion is there's just no way we're going
to micro-manage what happens.
What really is going to matter now and in the future, it's going to be the decisions
that physicians make at the bedside, and our job is to set up the system that surrounds
those bedside decisions to make sure that providers have the incentive to provide the
right care at a decent price, but not more than that and not less than that.
Again, that's a wonderful soundbite, because I used the phrase "The right care," and of
course it's very hard to define exactly what that is, so we're going to end up setting
systems that hopefully will do a better job in the future. But it's a nontrivial task.