What health care really needs is a full-meal deal

April 28, 2014
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On a daily basis, millions of Americans go into restaurants of all types and order package deals on food.

“Do you want fries with that?” has become so common, it’s a cliché.

But it’s also a poignant symbol of how business works throughout our society—if you bundle multiple items together into a package, you get a deal. It’s true in fast food, grocery stores, cable-Internet-telephone services, and innumerable other things.

But not in health care. If McDonald's charged its customers like the U.S. health care system does, not only would it make them pay separately for a hamburger, fries and drink, it would bill a different price for the meat, lettuce, pickle, mayo, ketchup, bun, wrapper, cup, soda and ice.

In fact, this piecemeal method of charging for services is so ingrained in the health care system that health insurers and third-party administrators that handle employer health benefits are, in many cases, incapable of processing package deals for their clients.

And doing bundled payments with the federal Medicare program was essentially illegal—until just recently.

“Federal statutes have historically outlawed the level of collaboration necessary to establish an effective bundled payment program. However, recent guidance from the Office of the Inspector General and waivers from [the Centers for Medicare & Medicaid Services] have cracked the door slightly ajar. It is still a complex web of legal requirements,” wrote Gene Ford, a spokesman for Indiana University Health, in an email about IU Health’s plans to launch a bundled price for knee and hip replacement surgeries this year.

I wrote this past weekend about recent moves by IU Health and other local hospitals to offer bundled prices on joint replacements. There are similar efforts under way across the country, mainly focused on orthopedic and cardiac surgeries.

But not until health insurance plans—both governmental and private—give much greater freedom to doctors and hospitals to “repackage and reprice” their services—like companies from Applebee’s to Apple do all the time—will health care costs have a chance to come down, argues health economist John Goodman.

“Everyone on the provider side should be encouraged to make Medicare a better offer,” Goodman wrote in 2011 when Medicare launched its bundled payment program for heart and joint surgeries. “Medicare should accept these offers provided that (1) the total cost to government does not increase, (2) patient quality of care does not decrease and (3) the provider proposes a reasonable method of assuring that (1) and (2) have been satisfied.”

Goodman thinks Medicare’s program comes up short because it prescribes the bundle of services that can be provided. Others disagree, arguing that the Medicare experiments are a first step that will lead to major savings.

Goodman offers several examples of the kind of package deals that have been successful—and ought to be replicated.

Geisinger Health System in Pennsylvania offers a bundle that includes heart surgery AND a 90-day guarantee of the outcome. But Medicare and private health insurers rules don’t pay for 90-day guarantees, so Geisinger’s guarantee is rare.

Or the pharmacists in North Carolina that dispense diabetes medicines AND provide primary care counseling to help patients adhere to the medicines and change their lifestyles. But Medicare and private health insurers don't pay pharmacists to provide this counseling, so most do not.

Or Dr. Jeffrey Brenner, the now-famous doctor in New Jersey who has saved Medicare billions of dollars by providing primary care AND social worker services that prevent hugely expensive hospitalizations. But Medicare and private health insurers don't pay doctors for acting as social workers, so most do not.

Medicare, and private insurers, are starting to encourage doctors and hospitals to hire social workers, partner with pharmacists and focus more on outcomes by the creation of accountable care organizations. These ACOs get to share in the savings created by these additional services.

But most hospital executives aren’t eager to form ACOs. And nearly half of ACOs haven’t been able to achieve savings.

If those trends continue, there could be a substantial chunk of the health care system that chugs along using the same old, fee-for-service payment system—which nearly everyone blames for the ever-growing health care spending in our country.

Until doctors and hospitals make a whole lot more headway—or, perhaps, more accurately, are allowed to make more headway—in offering package deals, it’s hard to foresee major progress on containing out-of-control health care costs.

  • Will Not Happen
    Until we have a healthcare system that is more concerned about quality and service than doctor and executive incomes.
    • social work in medicine
      This is a great example of how licensed medical social workers can be such a strong asset to the healthcare industry. Unfortunately, they are underutilized and underpaid.
    • xperience Factor
      JK - A quick question - does the "bundle" concept include pricing for "routine" procedures? I have limited experience here, but every hospital bill I have received has a price for X procedure + a laundry list of "supplies", etc. Shouldn't they be able to quote a price for something like knee replacement or such, which is relatively commonplace, as one item? Maybe even with the surgeon included, as many of the docs work there too, now? I'm thinking of the laser eye surgery model that many of the "market oriented" critics are now fond of referencing.
    • No to ACOs
      Two problems I don't see addressed: 1) Pricing is secret until after Medicare or insurance processes it. Since people have no idea of prices, it is no wonder they don't spend wisely. 2) Those who promote Accountable Care Organizations assume they can dump people into little colonies. It seems ACOs are employment guarantee schemes for less-than-stellar providers. Honestly, people will refuse to be dumped. HMOs didn't work in the 1990s and they won't work now.
    • Physician Income
      Physician income has fallen over 60% since the 1980's, so much so that many physicians (primary care more than any) are not able to operate their practices independently. The physician I work for (a surgical subspecialist) collected an average of 28% of every dollar he billed last year for his services. Physicians spend 4 years in undergrad, 4 years medical school and anywhere from 3-7 years in specialty training to get where they are. The majority of individuals that make it through this process are dedicated and some of the most hardworking/educated on the planet. Reducing physician compensation will only serve to drive them out of the field. Show me any other field that willing accepts a 60-70% cut in what they are owed for their services...
      • Physician Income
        Grant, can you please sight me your source that shows physician income has gone down 60% since the 1980s? Very popular physician compensation survey benchmarks such as MGMA, AMGA and Sullivan Cotter all beg to differ. Physician compensation continues to increase year over year according to their surveys of thousands of physicians across the country. Thanks and respectfully, Nick

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