Physician-Led Healthcare Reform

We cannot control healthcare costs without greatly reducing the endemic waste that plagues our system. Moving to a single-payer, Medicare for All system would greatly reduce one part of that waste — administrative costs — but would have little effect on the waste in care delivery.

The decrease in administrative costs would occur only once, after which health spending would resume its inexorable rise. Price controls, the only other cost-reduction mechanism in the Medicare for All proposals, would harm many providers if their incomes were cut to the levels that those schemes necessitate. This is a self-defeating approach. Unless physicians can be engaged in the reform process, it is doomed to failure.

To make Medicare for All work for all stakeholders, it must give healthcare providers a strong incentive to cut the amount of waste in the system; but that isn’t as simple as just having doctors practice more efficiently in return for a share of the savings. The entire system needs to be restructured from top to bottom to provide the optimal conditions for physicians to deliver high-quality care in the most efficient manner.

Primary care doctors must be placed in charge of the system, and they must form groups large enough to take financial risk so that they can be paid for value rather than volume. By cutting waste and improving outcomes, high-performing physicians — both primary care doctors and specialists — could take better care of patients while maintaining or raising their own incomes.

Like other people, most physicians are wary of change. Under a restructured system, they’d have to make major changes in how they practice. They’d have to practice in groups different from any they’ve ever known, in many cases with physicians they don’t know. The financial incentives underlying their business would be turned upside down. Why should they do this?

To understand the reason, physicians must recognize that some kind of fundamental change is inescapable. The current fee-for-service system, like Soviet communism in 1989, cannot continue for long. The American people are crying out for change because they can no longer afford healthcare. This is the number one issue for voters. Politicans — at least on the Democratic side — are responding to this widespread popular discontent. Whatever physicians may think about Medicare for All, it’s coming, probably on the wings of a public option.

Under this approach, which is supported by Democratic Presidential Nominee Joe Biden, more and more people would join a public plan that would probably pay physicians at Medicare rates. Private insurance would continue to pay more, but it would shrink as a percentage of their business. So doctors would be faced with a painful choice: either remain as they are and see their incomes decrease, or participate in physician-led healthcare reform that allows them to recapture their lost revenue by taking financial risk. This model could save our healthcare system by cutting costs while allowing doctors to maintain or increase their incomes.

Managed Competition

Besides risk, the other major component of this physician-led reform model is competition among providers. That may come as a surprise to those who believe that a single-payer, tax-financed system would necessarily squelch free enterprise and result in the government making all decisions on healthcare, but this doesn’t have to be the case.

In the 1990s, the Clinton Health Plan relied largely on Alain Enthoven’s theory of “managed competition.” Under this legislation, health plans with standardized benefits would have competed for enrollees under very strict government regulation. The physician-led reform model does something similar, but with a major difference: Instead of managing the competition among health plans, it sets the conditions for competition among large primary care groups. This approach places the competition where it should be: with the providers who are best situated to reduce waste without stinting on necessary care.

Such a model would be difficult if not impossible to implement under a multi-payer system. The primary care doctors must be financially at risk for all their patients to align their incentives; under the current system, in contrast, they are constantly whipsawed between the incentives of fee-for-service and value-based arrangements of various kinds. Additionally, as long as profit-making health plans take primary insurance risk or administer the plans of self-insured employers, they will try to interfere in care management. As doctors know well, micromanagement is not good for them or their patients.

Instead, care management should be directed by primary care physicians. PCPs are best-suited to manage care because they are upstream of the major cost drivers: hospitals, specialists, ancillaries, and post-acute care providers. Through their treatment and referral decisions, PCPs influence the cost of a case and the patient’s outcome. They can appropriately manage many patients who have chronic conditions without referring to a specialist. They can coordinate care across care settings and they are well-placed to interface with community-based organizations that address patients’ unmet social needs.

Ideally, during the decade-long transition to Medicare for All, the care delivery system would be transformed along the lines described above. Primary care groups capable of taking financial risk would be incentivized to deliver high-quality care at the lowest possible cost. They’d refer to and collaborate with specialists who were committed to the same goals. Overall spending growth would slow and possibly reverse, yielding the extra money required for universal, comprehensive coverage while allowing healthcare providers to thrive as well.

This rosy scenario, however, cannot become reality without concerted action by the federal government. The corporate gigantism that has overtaken healthcare — in care delivery, health insurance, and pharmaceutical manufacturing — is too big for the free market to tame. The states are unlikely to agree on the regulations needed to rein in enormous healthcare organizations that often cross state boundaries, so any proposal to fundamentally restructure healthcare will require federal legislation.

National All-Payer Law

As hospital systems become larger and employ more physicians, healthcare prices will continue to rise and independent doctors will find it harder to remain independent. Hospitals will never fully embrace value-based care as long as it threatens their primary business model, which is to fill beds and generate outpatient revenues. To create a viable, sustainable healthcare system, the market power of hospitals must be eliminated.

Federal antitrust policy is not adequate to handle this task. Even if the Federal Trade Commission had more latitude to deal with mergers among not-for-profit entities, the industry is already so consolidated that the FTC would have to break up health systems involving thousands of hospitals. Such a gargantuan effort would be practically and legally unfeasible.

All-Payer Systems

The government could curtail health systems’ market power without breaking them up. For example, either states or the federal government could adopt “all-payer” models similar to those in Maryland and West Virginia. Under the Maryland model introduced 40 years ago, every insurer, including Medicare, Medicaid, and private health plans, pays uniform hospital rates negotiated between the state and the hospitals.

It would be difficult for other states to replicate this approach because commercial rates are now so much higher than Medicare and Medicaid rates. A more feasible approach would be to emulate West Virginia, which sets only commercial insurance payments to hospitals.(1) In either case, however, an all-payer system would eliminate the ability of dominant health systems to extract very high rates from private payers.

Before Maryland implemented its all-payer model in 1977, the average cost of a Maryland hospital admission was 26 percent above the national average. In 2007, the average cost per case was 2 percent below the national average. In 2000, however, after the state eliminated payment adjustments based on the volume of hospital admissions, those admissions began to increase rapidly.(2) Consequently, in 2014, Maryland started setting a global annual budget for each hospital in the state. Hospitals bill payers per admission (for inpatient care) or per service (for outpatient care) but are now expected to raise or lower their prices to remain on budget.(3)

In the first three years after this program was fully implemented, Maryland hospital spending rose only 1.4 percent annually, well below the CMS target of 3.6 percent. Acute care admissions and gross hospital spending fell 2.7 percent and 2.3 percent, respectively, between fiscal years 2015 and 2016. Moreover, quality improved: Maryland saw a 6.1 percent reduction in readmissions and a 43.3 percent drop in hospital-acquired conditions over the three-year period.

As might be expected, providers responded to global budgets by shifting more care to the ambulatory and post-acute care sectors. Consequently, non-hospital spending in Maryland grew by 4.2 percent in 2016, greatly exceeding the national rate of 1.9 percent and offsetting the decrease in hospital spending.(4)

Renewed Interest in States

It’s unlikely that most states will go in this direction; however, the federal government could adopt a national all-payer rate system. Early in the transition to Medicare for All, Congress could pass legislation requiring all private insurers and self-insured employers to pay the same rates to hospitals, with adjustments for charity care and rural needs. Such rates would have to be negotiated by the government, which would continue to pay current Medicare rates; current state Medicaid rates would also remain in place until Medicaid was folded into Medicare during the transition period. Eventually, after private insurance disappeared, hospitals would be paid at negotiated rates across the board.

If the concept of a national all-payer system seems quixotic, no less an authority than Donald Berwick, MD, former acting administrator of the Centers for Medicare and Medicaid Services, recently proposed limiting hospital charges to 120 percent of Medicare rates across the board. “This is enough revenue to offset Medicaid underpayments and should provide appropriate pressure on hospitals to become more productive,” Berwick and Robert Kocher argued in a Health Affairs Blog post. The authors also recommended that future hospital price increases be limited to the annual increase in the consumer price index.(5)

Divesting Practices

Even under all-payer rate setting for hospitals, healthcare systems that employ a large number of physicians would still have bargaining power. To eliminate their ability to raise costs by negotiating higher rates for their employed physicians, the government could simply prohibit hospitals and other non-physician-owned entities from hiring doctors or owning their practices.

There are several good reasons for doing this. Besides raising costs, hospital employment of doctors can reduce the quality of care by forcing physicians to admit patients to lower-quality facilities.(6) Hospital-owned practices also have more preventable admissions than do physician-owned practices,(7) and employed physicians are more likely than independent doctors to burn out because of their loss of autonomy.

The reluctance of healthcare systems to embrace value-based care must also be considered. Compared to independent practitioners, employed physicians have less incentive to restrain hospital utilization, so the divestment of owned practices would liberate physicians who are now “aligned” with hospital business strategies to pursue value-based care under a different set of financial incentives.

Corporate Practice of Medicine Laws

Many states already have “corporate practice of medicine” laws that bar corporations from employing physicians. These statutes were enacted to avoid conflicts of interest between physicians’ duty to provide the best care for their patients and their employers’ dictates — exactly the kind of conflict in which many doctors find themselves today. Most states with such laws allow hospitals to hire doctors, however, since they’re also in the business of medicine.(8)

The sole exception is California. That state’s corporate practice of medicine law prohibits any non-professional organization except for a public hospital, a narcotics treatment program, or a nonprofit medical research firm from directly employing physicians. Unfortunately, the California corporate practice of medicine law has not had the intended effect. Instead of hiring doctors, private hospitals and health systems simply lease their services from “foundations” that stand in for professional corporations.

The federal government could enact a stronger law that prohibits hospitals from directly or indirectly employing doctors. The statute should be written so that it also applies to insurance companies that employ doctors, such as United/Optum and Anthem. The venture capitalists that have recently been snapping up physician practices to turn them over for a profit should be forced to divest those practices as well.(9)

Hospitals would not have to be compensated for returning physicians to private practice. For one thing, it’s unclear whether most hospitals would be worse off economically if their medical staffs were independent rather than employed. Considering the losses that hospitals incur on practice management, some hospitals would benefit financially from divesting their owned practices. The hospitals’ main concern would be to prevent competitors from controlling their referring doctors. If no health system were allowed to employ physicians, that wouldn’t be a problem.

Certain kinds of physicians should continue working for or exclusively contracting with hospitals because they are indispensable to inpatient or ED care. Among these are radiologists, pathologists, emergency department specialists, and critical-care physicians. Hospitals should also be allowed to employ hospitalists, who can increase the efficiency of care.

The restructuring of the system required by the physician-led reform model obviously would upset a lot of apple carts; however, it would allow doctors to take back control of healthcare and, by doing so, eliminate enough waste to make the system sustainable. Without this waste reduction, Medicare for All will simply not work. Only physicians can save our system.

References

1. Ginsburg P. Health Care Market Consolidations: Impacts on Cost, Quality and Access. Testimony to California Senate Committee on Health. March 16, 2016. https://www.brookings.edu/testimonies/health-care-market-consolidations-impacts-on-costs-quality-and-access .

2. Murray R. Setting Hospital Rates to Control Costs and Boost Quality: The Maryland Experience. Health Aff. 28(5):1395–405. https://www.healthaffairs.org/doi/full/10.1377/hlthaff.28.5.1395

3. Roberts ET, Hatfield LA, McWilliams JM, Chernew ME, Done N, et al. Changes in Hospital Utilization Three Years into Maryland’s Global Budget Program for Rural Hospitals. Health Aff. 37(4):644–53. https://morningconsult.com/wp-content/uploads/2018/04/Health-Affairs-Maryland-2018-0112_p2.pdf .

4. Galarraga J, Pines JM. The Challenging Transformation of Health Care Under Maryland’s Global Budgets. Health Affairs (blog). Dec. 19, 2017. https://www.healthaffairs.org/do/10.1377/hblog20171214.96251/full/ .

5. Kocher R, Berwick DM. Policies for Making Health Care in the United States Better. Health Affairs (blog). June 6, 2019. https://www.healthaffairs.org/do/10.1377/hblog20190530.216896/full/?utm_source=Newsletter&utm_medium=email&utm_content=Kocher+and+Berwick%3A+What+To+Do+While+Considering+Medicare+for+All%3B+Wisconsin+Medicaid+Expansion%3B+The+Specialty+Palliative+Care+Workforce&utm_campaign=HAT .

6. Hancock J. When the Hospital Is Boss, That’s Where Doctors’ Patients Go. Kaiser Health News. Sept. 9, 2015. http://khn.org/news/when-the-hospital-is-boss-thats-where-doctors-patients-go .

7. Casalino LP, Pesko MF, Ryan AM, Mendelsohn JL, Copeland KR, et al. Small Primary Care Physician Practices Have Low Rates of Preventable Hospital Admissions. Health Aff. 33(9):1680–88. https://www.healthaffairs.org/doi/pdf/10.1377/hlthaff.2014.0434 .

8. Yetter EJ. Understanding Corporate Practice of Medicine Laws by State. Physicians First Healthcare Partners (blog). Aug. 25, 2017. https://www.physiciansfirst.com/blog/corporate-practice-of-medicine-laws-by-state .

9. Finnegan J. Private Equity Companies’ Acquisition of Physician Practices Likely to Accelerate. Fierce Healthcare. Jan. 10, 2019. https://www.fiercehealthcare.com/practices/private-equity-companies-acquisition-physician-practices-likely-to-accelerate .