Health Affairs, 25, no. 6 (2006): w531-w536 (Published online 24 October 2006) doi: 10.1377/hlthaff.25.w531 © 2006 by Project HOPE	New Online   Senate Health Reform Bill   Rewarding Providers   Public Option Policy Brief   Health Reform & Abortion   Delivery System Reform

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Coordinated Care In A ‘Consumer-Driven’ Health System

Abstract

 
High-deductible health plans—with and without spending accounts—are gaining ground. Will these evolving benefit designs complement or undermine the coordination of care for patients with chronic illnesses? Based on an October 2005 roundtable sponsored by the California HealthCare Foundation and Health Affairs, this paper discusses the implications of a changing health insurance market for the chronically ill, capitation payment for medical groups, and consumers navigating the system.

A central question associated with these new benefit designs is how they will influence the use of medical care and associated outcomes, particularly for chronically ill and low-income people. Proponents claim that the new designs will engage consumers in understanding and assessing treatment options; increased out-of-pocket costs along with information tools will provide both the incentive and the ability to reduce the use of unnecessary and ineffective care. Detractors argue that they are more advantageous to the healthy and wealthy and will contribute to deterioration of the risk pool and cause the sick and poor to forgo necessary care, with adverse consequences.

In October 2005 the California HealthCare Foundation (CHCF) and Health Affairs held a roundtable event, Coordinated Care in a "Consumer-driven" System. This roundtable, the eighth in a series, brought together leaders from insurance, clinical, purchaser, consumer, and regulatory entities to examine the potential of the new products to combine the best of consumerism—individual responsibility for health and cost-conscious utilization—with the best of managed care—coordination among providers in identifying and treating people with complex and chronic illnesses.²

Implications For The Chronically Ill

Top Implications For The Chronically... Whence Capitation? Empowered Or Confused? NOTES

 
A starting question for roundtable participants to consider was how patients with chronic illnesses, such as diabetes and asthma, would fare in a consumer-directed environment. The specific concern for this population is whether these patients would respond to financial incentives by reducing the use of needed care, potentially resulting in worsened conditions and adverse events (such as hospitalization). Other consumer segments—the well, those with acute episodic needs, and the catastrophically ill—are of concern as well, but to a lesser degree for various reasons: The well, with less need for medical care, are likely to be less affected by out-of-pocket costs (particularly given that preventive services are most often exempt from the deductible in consumer-directed products); those needing acute episodic care may experience increased costs, but on a one-time basis; and the catastrophically ill will quickly exceed virtually any deductible. By contrast, the chronically ill will face regular decisions over years or a lifetime about compliance. For example, diabetics will decide whether to incur out-of-pocket costs associated with regular visits for foot and eye exams and for maintenance drugs. These services are generally not considered to be preventive because they are associated with an existing diagnosis.

The chronically ill may encounter sizable out-of-pocket costs in a high-deductible environment. A study commissioned by the CHCF and conducted by Milliman USA looked at products commonly available in the individual market in California: an HMO ($25 copayment for office visits, $200 per day for inpatient care, $2,500 out-of-pocket maximum), a moderate PPO ($1,000 deductible, 30 percent coinsurance, $2,500 out-of-pocket maximum), and a limited PPO ($2,500 deductible, 30 percent coinsurance, $7,500 out-of-pocket maximum); plans with spending accounts were not included in the analysis.³ Milliman developed profiles for five hypothetical consumers with a range of conditions and assessed premium and out-of-pocket cost sharing for each person in each product (Exhibit 1). The analysis found that for a fifty-two-year-old diabetic in fair health in the San Francisco area, premium costs would be highest, but total out-of-pocket costs (premiums plus cost sharing) would be lowest, in the HMO. In the moderate PPO, which is likely to resemble most employer-sponsored consumer-directed health plans, the patient’s cost sharing at the point of service was $3,500—almost $300 per month, not including premium cost.

View larger version (21K): [in this window] [in a new window] EXHIBIT 1 Annual Health Care Costs For Five Hypothetical Consumers, By Profile, San Francisco Individual Insurance Market, 2005

The most current data on this question present conflicting results based on self-reported information. The Strategic Health Perspectives effort, led by Harris Interactive, finds that much higher proportions of chronically ill respondents who are enrolled in high-deductible health plans forgo maintenance prescription drug therapy because of cost, compared with enrollees in traditional plans.⁶ By contrast, data collected by McKinsey and Company show that chronically ill respondents in full-replacement consumer-directed plans are more likely than those in other plans to be compliant.⁷ Part of the explanation for these different results may lie in whether funded accounts (HRAs or HSAs) are available to the enrollee; in an accompanying paper, Melinda Buntin and colleagues review the literature with relevance to consumer-directed plans and cite studies on medical savings accounts (MSAs) to estimate that accounts might offset expected spending reductions resulting from high deductibles by about 50 percent.⁸

Pending a definitive answer to questions about how the chronically ill would fare under consumer-directed care, roundtable participants generally agreed that purchasers, health plans, and regulators could take several steps to ameliorate potentially adverse effects of increased cost sharing at the point of service.

Risk-adjust contributions. Plans should consider adjusting cost sharing and contributions to HRAs for health status, particularly for those with low incomes—that is, reduce deductibles or increase account contributions for low-wage employees with chronic illnesses. Employers’ contributions directly to HSAs cannot vary based on health status or income, as a result of current Treasury Department restrictions.⁹

Define "preventive care" broadly. Health plans should consider including not just services such as immunizations and mammograms in the preventive care benefit but also maintenance drug therapy for chronic conditions, which can prevent adverse events such as hospitalization for uncontrolled diabetes. Again, HRA-based plans are more flexible than HSA-qualifying plans; the latter must comply with Treasury rules specifying that only "preventive care" can be exempt from the deductible. There is now great variation in interpretation of "preventive care;" however, maintenance drugs for chronic conditions are most often excluded. One plan, Aetna, has published a list that includes medications for several chronic conditions as allowable for first-dollar coverage under the preventive care provision.

Substitute coinsurance for deductibles. Health plans should consider replacing all or part of the deductible with coinsurance and a higher out-of-pocket maximum, to smooth out cost sharing at the point of service and avoid the dilemma of too-strong financial incentives below the deductible and too-weak financial incentives above the deductible.

"Smarter" cost sharing. Plans should focus out-of-pocket costs on discretionary care that is subject to patients’ preferences and should reduce out-of-pocket costs for nondiscretionary care.¹⁰ Indeed, some purchasers have begun to focus on this issue, with some success. Pitney Bowes has moved all drugs for treating three chronic conditions (diabetes, asthma, hypertension) to the first (lowest-cost-sharing) tier in its pharmacy benefit and has observed reduced emergency room visits and overall costs.¹¹ In 2004 the National Business Group on Health created a Committee on Evidence-based Benefit Design focused on encouraging effective care and discouraging ineffective care.

Whence Capitation?

Top Implications For The Chronically... Whence Capitation? Empowered Or Confused? NOTES

 
A distinctive feature of California’s health care delivery system is the prevalence of large multispecialty medical groups that have developed administrative and medical management systems in response to capitation-based financing. These groups are more likely than medical groups elsewhere in the United States to use hospitalists, disease registries, case management, and feedback to physicians, care management processes that position them to care for the chronically ill.¹²

The proportion of California workers enrolled in HMOs (49 percent) is still more than double the national figure (21 percent), but PPOs have been gaining market share relative to HMOs: Between 2001 and 2005, PPO market share increased from 25 percent to 34 percent of covered California workers.¹³ A focus of discussion for roundtable participants was whether the migration away from HMOs will undermine California’s medical groups, eroding the capitation payments that have fueled investment in information technology (IT) and care processes, which in turn have enabled population management. Several roundtable participants noted the irony that organized systems have the infrastructure to support the use of IT to facilitate communication and financial incentives—factors central to the success of any model based on consumer decision making—yet appear to be at risk in the contemporary market environment.

Erosion of capitation-based payment is likely to be compounded by risk segmentation, as healthier and less costly patients disproportionately migrate from high-premium and low-cost-sharing HMOs to low-premium and high-cost-sharing PPOs. One potential direction for medical groups might be to specialize in managing care of the chronically ill—packaging coordinated care services for complex patients and reducing or eliminating focus on the healthy. Large, organized systems with sizable investments in care management infrastructure might be best positioned to manage populations of complicated and chronically ill patients but be perceived as inconvenient for healthy populations with routine medical needs. By contrast, retail medical care such as that provided by Minute Clinic and Redi-Clinic might be best for quick, inexpensive, episodic care: The focus is on convenience, and the per unit price can be easily posted to facilitate consumer shopping.

One specialization scenario might be that chronically ill patients enrolling for care with a capitated multispecialty medical group would experience lower cost sharing but have the option to coordinate their own care if they are willing to incur higher out-of-pocket costs. Plans could pay risk-adjusted capitation rates to such groups for enrollees identified as chronically ill (through, for example, claims analysis or health risk assessments); Medicare and Medicaid could be expansion markets for such services.

Empowered Or Confused?

Top Implications For The Chronically... Whence Capitation? Empowered Or Confused? NOTES

 
As health insurance products increasingly feature greater clinical responsibility and financial accountability on the part of consumers, the optimistic scenario is that patients will respond by demanding easy-to-navigate decision tools, making choices based on evidence with solid information on both quality and cost, and balancing the risks and benefits of treatment options. The less optimistic scenario portrays sick and vulnerable patients as confused about options, unclear about where to go for information, and stymied by difficult trade-offs between the need for medical care and out-of-pocket costs.

Will consumers embrace the challenge or avoid the required effort? A few guidelines can be derived from two recent literature reviews related to consumer decision making.¹⁴ First, more information or choice is not always better: Consumers have limited ability to process information, and they need to find ways to simplify options. The confusion resulting from the complexity of the Medicare Part D prescription drug benefit and the many choices available demonstrate the pitfalls of having too much information.¹⁵ Second, personal relevance is critical: A hospital may excel at labor and delivery but fall short on orthopedics; the average physician cost in a geographic region likely masks two- or threefold variation in individual provider prices. Patients want information that is relevant to the decisions they face, whether it be plan enrollment, provider selection, or choice of treatments. Two challenges emerge: availability of data at a level of detail consumers find meaningful (for example, at the individual provider level), and communication of that information.

Although the state of decision-support tools lags behind the emergence of products providing incentives for use of such tools, the market is changing rapidly, and some recent developments are worth noting.

Price transparency. Negotiated prices between plans and providers have historically been proprietary and closely guarded information. Now, however, Aetna has made physician-specific negotiated rates for some procedures and tests available online in the Cincinnati area, allowing plan members to comparison-shop across providers. Momentum is growing in the public policy arena as well: The Bush administration recently announced that Medicare will begin to post the prices it pays for certain procedures.¹⁶

NCQA Member Connection standards. The National Committee for Quality Assurance (NCQA) recently released a new set of standards focused on plans’ interaction with members both by phone and on the Web in the areas of benefits, claims status, self-management tools for specified conditions, and prescription drug information. Although the NCQA has historically focused on HMOs, it is increasingly seeking to expand its focus across health plan products, including to emerging consumer-directed products.

Personal health care finance. Spurred in part by the federal legislation that created HSAs, providers of financial services are moving into the health care realm. One example is Quicken Medical Expense Manager, a version of the well-known budgeting software, to help consumers manage bills. In addition, some HSA administrators are beginning to offer lines of credit, to cover costs of medical care that exceed available funds in the account.¹⁷

Notwithstanding these developments, gathering information in today’s market requires effort. In a recent "mystery shopper" project, researchers posing as prospective patients called and visited sixty-four hospitals across California for prices on services such as cardiac catheterization. Most eventually received a response, but some callers experienced multiple transfers, long hold times, and voicemail dead-ends; frequently, the Current Procedure Terminology (CPT) code was needed for the price information to be provided.¹⁸

NOT WITHSTANDING THE momentum behind the "consumer-directed" movement, roundtable participants’ perspective was that the term "performance-based" better expresses the combination of consumer choice and accountability, provider coordination, integration, and efficiency, and the public policy values of inclusion and fairness desired for the future of American health care. So how do we get there from here?

Smarter benefit and network designs that emphasize evidence-based, effective, and efficient care provide a partial solution. Better information and increased transparency for consumers as they navigate the increasingly complex marketplace would contribute as well. Public policy can promote both of these directions through ensuring that purchasers have the flexibility to implement benefit and network designs that support those with chronic illness (for example, through broadening the definition of preventive care); supporting standardized performance measurement and reporting of both price and quality information; and bringing innovations in benefit and network design into purchasing for public programs such as Medicare and Medicaid.

Editor's Notes

 
Jill Yegian (jyegian{at}chcf.org) is director, health insurance, at the California HealthCare Foundation in Oakland.

The views presented here are those of the author and do not necessarily represent those of the California HealthCare Foundation.

NOTES

Top Implications For The Chronically... Whence Capitation? Empowered Or Confused? NOTES

 

1. G. Claxton et al., "What High-Deductible Plans Look Like: Findings from a National Survey of Employers, 2005," Health Affairs 24 (2005): w434–w441 (published online 14 September 2005; 10.1377/hlthaff.w5.434).[Abstract/Free Full Text]
2. Participants included Sophia Chang, California HealthCare Foundation (CHCF); Donald Crane, California Association of Physician Groups; Francis J. Crosson, Permanente Federation; Robert Cunningham, Health Affairs; Cindy Ehnes, California Department of Managed Health Care; Douglas Emery, consultant; Jon Gabel, Center for Studying Health System Change; John Garamendi, California Department of Insurance; Elizabeth Gilbertson, HEREIU Welfare Fund; Marjorie Ginsburg, Sacramento Healthcare Decisions; Alan Glaseroff, Humboldt–Del Norte Independent Practice Association; John Goodman, National Center for Policy Analysis; Peter Lee, Pacific Business Group on Health; Robert Margolis, HealthCare Partners Ltd.; Susan Marquis, RAND; Donald Metz, Health Affairs; Stephen Parente, University of Minnesota; Joshua Raskin, Lehman Brothers; James Robinson, University of California, Berkeley; Meredith Rosenthal, Harvard University; Christobel Selecky, Lifemasters Supported SelfCare Inc.; Sally Wellborn, Wells Fargo and Company; and Jill Yegian, CHCF.
3. A.L. Baldwin III, M. Mulkey, and M. Kagan, "The Price of Illness: Cost Sharing and Health Plan Benefits," September 2005, http://www.chcf.org/documents/insurance/ThePriceofIllnessConsumerCostSharing.pdf (accessed 18 September 2006).
4. J.P. Newhouse, "Consumer-directed Health Plans and the RAND Health Insurance Experiment," Health Affairs 23, no. 6 (2004): 107–113.[Abstract/Free Full Text]
5. D.P. Goldman et al., "Pharmacy Benefits and the Use of Drugs by the Chronically Ill," Journal of the American Medical Association 291, no. 19 (2004): 2344–2350[Abstract/Free Full Text]; and H.A. Huskamp et al., "The Effect of Incentive-based Formularies on Prescription-Drug Utilization and Spending," New England Journal of Medicine 349, no. 23 (2003): 2224–2232.[Abstract/Free Full Text]
6. T.H. Lee and K. Zapert, "Do High-Deductible Health Plans Threaten Quality of Care?" New England Journal of Medicine 353, no. 12 (2005): 1202–1204.[Free Full Text]
7. V. Agrawal et al., "Consumer-directed Health Plan Report—Early Evidence Is Promising," 2005, http://www.mckinsey.com/clientservice/payorprovider/Health_Plan_Report.pdf (accessed 13 March 2006).
8. M.B. Buntin et al., "Consumer-directed Health Care: Early Evidence about Effects on Cost and Quality," Health Affairs 25 (2006): w516–w530 (published online 24 October 2006; 10.1377/hlthaff.25.w516).[Abstract/Free Full Text]
9. See Section 223 of the Internal Revenue Code (IRC) for comparability rules related to health savings accounts; contributions to HSAs through Section 125 cafeteria plans can vary as permitted by nondiscrimination rules in Section 125.
10. J.C. Robinson, "Managed Consumerism in Health Care," Health Affairs 24, no. 6 (2005): 1478–1489.[Abstract/Free Full Text]
11. J.J. Mahoney, "Reducing Patient Drug Acquisition Costs Can Lower Diabetes Health Claims," American Journal of Managed Care 11, no. 5 Supp. (2005): S170–S176.[Web of Science][Medline]
12. R.R. Gillies et al., "How Different Is California? A Comparison of U.S. Physician Organizations," Health Affairs 22 (2003): w492–w502 (published online 15 October 2003; 10.1377/hlthaff.w3.492).[Abstract/Free Full Text]
13. Center for Studying Health System Change, California Employer Health Benefits Survey 2005, 28, November 2005, http://www.chcf.org/documents/insurance/EmployerBenefitSurvey05.pdf (accessed 18 September 2006).
14. D. Shaller, "Consumers in Health Care: The Burden of Choice," October 2005, http://www.chcf.org/documents/insurance/ConsumersInHealthCareBurdenChoice.pdf (accessed 18 September 2006); and M.B. Buntin et al., "Consumer-directed" Health Plans: Implications for Health Care Quality and Cost, June 2005, http://www.chcf.org/documents/insurance/ConsumerDirHealthPlansQualityCost.pdf (accessed 18 September 2006).
15. H. Meyerson, "Bewilder Thy Father and Mother," Washington Post, 3 November 2005.
16. S. Lueck, "Prices U.S. Pays Hospitals, Doctors to Be Publicized," Wall Street Journal, 14 March 2006.
17. K. Henrickson, The Race for Personal Healthcare Finance (Cambridge, Mass.: Forrester Research Inc., 2005); and E.G. Brown, Quicken for Healthcare Arrives Quietly (Cambridge, Mass.: Forrester Research Inc., 2005).
18. Devon Hill Associates (ed. A. DelPo), "Price Check: The Mystery of Hospital Pricing," December 2005, http://www.chcf.org/documents/hospitals/PriceCheckMysteryHospitalPricing.pdf (accessed 18 September 2006).

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