Money for nothing

In an excellent story called “A healthcare system badly out of balance,” Boston Globe reporters investigated what they called “the best kept secret in Massachusetts medicine.” Labeling it the “Partners Effect,” the article exposed that health insurers pay Massachusetts General Hospital, Brigham and Women’s Hospital, and Children’s Hospital 15 to 60 percent more than other state hospitals for care that is often no better – and sometimes worse – in quality. This pricing premium was attributed to branding, reputation, and geographic control that often forces insurers to give in to fee increases, or else risk losing members who demand access to these well-known institutions.

This pricing discrepancy should come as no surprise to people familiar with the back-and-forth battle between health delivery systems and insurers. And it’s essentially a no-win situation. When hospitals use market power to raise their fees, insurance premiums go up – and individuals who must then pay those higher premiums are unhappy. When insurers use market power to clamp down on fees and services, consumer choice goes down – and individuals who must then face gatekeepers, tiered formularies, and prior authorizations are unhappy.

There are multiple problems with this current system, but there are potential fixes. First, with no direct or immediate cost-benefit tradeoffs to be made, of course patients will almost always demand care from what they perceive to be the best providers. Making quality comparisons across providers available to patients is the first step in educating the public that perception is not reality. Many providers object to releasing this sort of data, fearing inaccuracy or misinterpretation – but for care that can be delivered in value-adding process business models like ambulatory surgical centers and retail clinics, measuring and comparing outcomes is entirely appropriate. In Massachusetts, the Health Care Quality and Cost Council will begin reporting such data this month. As long as the data focus on the rules-based parts of care delivery, they will not introduce the perverse incentives many fear, but instead truly inform patient decision-making.

The next step is to ensure that patients are motivated to use this information. The current health care system largely insulates patients from making the tradeoffs we expect to see in every other market; it’s no wonder that they can demand access to high-cost centers like MGH and Brigham without much care. However, the cost burden, whether in the form of higher premiums, lower salary, or more co-pays, ultimately flows to them. Health savings accounts are one way to make these costs apparent to individuals, so that each person or family can make their own appropriate tradeoffs. Many will continue to pay for access to the famous academic centers. But others, armed with cost and quality data and a responsibility for protecting their pocketbooks, will find that much of their health care needs are significantly over-served by these institutions.

Finally, disruptive models of care delivery must be encouraged, since these will be the new providers that can lower costs and offer greater choice to the motivated, well-informed health consumers described above. Some disruptive models will attract patients because they can deliver the same quality at lower prices. Others will offer quality care with greater convenience. But any institutions, new or old, with unacceptable quality will be forced to improve or else be pushed out of the marketplace. In the end, disruptive innovation will decouple the previous trade-offs we had to make between cost and quality.