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Join us as we dive into the Healthcare Incentives Framework with internal medicine physician and health policy researcher Taylor J. Christensen. Discover how this innovative approach identifies barriers to high-value care and explores practical strategies to align incentives, empower patients, and transform health care systems for better outcomes.
Taylor J. Christensen is an internal medicine physician and health policy researcher.
He discusses the KevinMD article, “The barriers to patients choosing higher-value providers and insurers.”
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Transcript
Kevin Pho: Hi, and welcome to the show. Subscribe at KevinMD.com/podcast. Today we welcome back Taylor Christensen. He’s an internal medicine physician and health policy researcher. Today’s KevinMD article is “The Barriers to Patients Choosing Higher Value Providers and Insurers.” Taylor, welcome back to the show.
Taylor Christensen: Thanks.
Kevin Pho: So tell us what this article is about for those who didn’t get a chance to read it.
Taylor Christensen: It’s a continuation—and pardon my voice, I’m still halfway without a voice, so you might have to cut any coughing—but it’s a continuation of a series of articles I wrote explaining basically the core issue with our health care system, how our incentives are not aligned properly, and how to realign them.
And the last time I was here, that’s what we talked about: those core issues of people mistaking financial incentives as being bad because they’re not aligned with what we want. The solution is not to get rid of the financial incentives but to align them with what patients value. And if we can do that, then health care will naturally start to evolve toward a much higher and higher value–delivering industry.
So that’s the premise for this article, and probably a couple of things will need to be reviewed from that last article, just for context for anyone who didn’t hear the last discussion. Then we can jump into how we actually do that, which is the fun part.
Kevin Pho: Perfect. So let’s give that context. In this article, you talk about your health care incentives framework. So talk about that context first, before jumping into your framework.
Taylor Christensen: Perfect. So financial incentives—to define what they are—when a company will earn more profit as a result of doing something, they are financially incentivized to do it. And the key word there is “profit.” They don’t care if their revenues go up and their costs go up just as much. That doesn’t help them. It’s when their revenues go up, or their costs go down, or a combination of the two. That’s what a financial incentive is.
And right now, what we have is companies that earn more profit for doing all sorts of things that are not what we want them to do. If they deliver more services, then they earn more money, so their incentive is just to deliver more services regardless of what patients need. So there are all these problems. And the challenge is how do we figure out how to align financial incentives with what patients want?
What patients want is high-value care, and value is quality divided by price. They want high quality for a low price. And the way to get those incentives aligned is if health care companies—whether it’s hospitals, any other providers, or even insurers—earn more profit as a result of delivering high-value care or services, then they will naturally try to find ways to deliver even higher value to patients.
And what happens when those incentives are aligned in that way—there are two steps to fixing the health care system. Step one: fix the incentives. Step two: let the system fix itself because suddenly, all these competitors are trying to find ways to innovate and deliver higher and higher value for patients. Some of them may choose to deliver the highest quality for a medium price; some may choose to deliver slightly lower quality but for a bargain-basement price. It can go any direction. That’s, I guess, the important context to know.
And when you look at a business—part of my background is in business strategy—and you look at the different variables that affect their profit, we talked about this last time: there are only a few variables that we could look at as being an effective lever to get them to earn more profit when they deliver higher value. The only one that actually makes sense is the quantity sold variable, which means market share. So what I’m saying is, what we need is for companies that deliver higher value for patients to gain a greater market share, which is how it works in every other industry. People are able to choose among their options, and when they find the one that has the highest value, more people choose that one.
So the challenge here, which is what we’re going to be talking about today, is how do you get people to preferentially choose the highest value option? And if we can do that, then what we will see is that the companies that deliver higher value will earn more profit, and the ones who deliver low value will receive less profit and will have to either change—innovate to improve their value—or go out of business. And suddenly that kind of continual evolution of companies trying to innovate and find ways to deliver higher value starts to happen in health care like it happens in almost every other industry. So that’s the challenge: getting patients to choose the highest-value options.
Kevin Pho: What are some of the obstacles that are preventing your vision from happening? What’s different about health care that isn’t in other industries, where people would choose high-value services?
Taylor Christensen: It’s interesting, because even when I was doing my business strategy degree, we didn’t really talk about the specific requirements for people to choose the highest value option. By the way, just to shorten my terminology here, the term I usually use is when patients make a “value-sensitive decision.” They’re not just price-sensitive; they’re not just quality-sensitive; they’re sensitive to both, which is being value-sensitive. So, the goal is to make value-sensitive decisions.
Most people analyzing industries aren’t forced to think about the very specific things that are required for a person to make a value-sensitive decision because it just kind of works in other industries. And so why doesn’t it work in health care? There are actually three parts to this. And if you have all three, then somebody can make a perfect value-sensitive decision. We can go into each of them in more detail after, but just to lay them out:
- You need multiple options, pretty obvious.
- You need to be able to identify the value of each option beforehand, before you make your choice. Again, by value, that means you need to know the estimated quality and the total price you’ll be expected to pay.
- You also actually need an incentive to consider both the quality and the price when you’re choosing among the options you have.
Those are the three. And I guess maybe I’ll go in reverse order. I’m not sure if this will be helpful, but I’ll put you on the spot, maybe, Kevin, and I’ll ask you: let’s say you’re a patient. You have insurance, you’ve maxed out your deductible for the year, and now you have a procedure. There are multiple hospitals that could provide that procedure for you that are relatively close by. You know that you’re not going to have to pay anything for this. How are you going to choose which hospital you go to?
Kevin Pho: So, you probably want to look at outcomes data. You want to look at complication rates. Those would be the two things that I would look for if price wasn’t an issue.
Taylor Christensen: Yeah, so that’s exactly right. What you’re saying, essentially, is you’re going to choose the highest-quality option without regard to price. It could be that you choose an option that’s this tiny bit better in its quality metrics and it’s four times as expensive as the next best quality, but you don’t care because you’re not having to pay the price. This is one of the barriers to that third requirement, which is to have an incentive to actually consider both the price and the quality when you’re making a decision.
And if we turn it around and say, well, what if the insurance company now gets to make the decision of where you get that procedure? You’ve already maxed out your deductible, so they know they’re not going to get any more money from you. How are they going to choose if they get put in the position of choosing which hospital you go to for the procedure? How would they choose, do you think?
Kevin Pho: They’re probably going to choose the lowest-cost hospital, assuming it’s not a discredited hospital that’s going to cost them a lot of bad publicity or something.
Taylor Christensen: Yeah, they’ll choose the lowest-priced one. So that’s another example of a situation—this does happen—where decisions are being made on which health care provider will be chosen, not with the incentive to consider both the quality and the price. And my opinion is that patients are in the best position to make that decision, not only because they’re the ones who know what quality metrics are most important to them. They might not care so much about the hospital’s overall mortality when they just—maybe they’re old and they can’t get around very easily, and so having a valet service is the most important quality metric for them. Each patient will have different quality metrics that are most important to them, and therefore, each patient will have a little bit different assessment of the value and quality of the different provider options.
And then they also, if the patient is required to pay more when they choose a more expensive provider, they know how much money they’re willing to dedicate to that as well. They might say, “Yeah, I could pay an extra few thousand dollars to go to this slightly better hospital, but it’s just not worth it for me. It’s not in my budget.” I feel strongly that patients should be the ones choosing where they get care for these reasons. They’re in the best position to determine what is highest quality for them and what price also makes sense for them. So that’s the third requirement of an incentive to consider both the quality and price when they’re choosing.
Kevin Pho: So talk about a path moving forward. You came up with a framework that hopefully would address some of these incentives and align them. Talk to us about what that vision is like.
Taylor Christensen: OK. So ultimately, it’s frustrating for me. Even this recent election cycle, I didn’t really hear much talk about how to fix health care. It’s just as much of a problem as it was every other election cycle, but nobody’s really talking about it. It seems like neither party has a real health care reform platform, and I feel like either party could take a lot of these principles and implement them—these aren’t partisan ideas—and it could make a huge, huge difference for our country. It wouldn’t be an immediate change, but we would start to see this evolution, and over several years, we would see significant benefits.
Really, the core focus that we need to be doing to fix our health care system is to identify the barriers that we have—those three requirements. I haven’t fully discussed each of them, but as we identify those barriers and remove as many of them as possible, we will start to see patients making value-sensitive decisions. Then that will lead to higher-value providers and insurers winning more market share. And that will then lead to innovation in them to maintain that market share, and their competitors to try to win back market share. This whole competition over value is incited, and that’s really what we need to focus our reform efforts on moving forward.
For example, we’ve already talked about the third requirement for patients to have to make the decision and to have incentive to consider both price and quality. They’re already incentivized to consider quality. A lot of times, they don’t care about price, like this scenario I gave you. So this gets to one of the things that I would say is—I hesitate to say this because it does require another regulation. I think there are many regulations that can be eliminated at the same time to overall increase simplicity in the insurance market. But if we could have insurance plans change slightly how they design and find a way to, as much as possible, require patients to pay at least a little bit more when they choose a more expensive provider, and have them pay a little bit less when they choose a less expensive provider, suddenly they will care about the price of the options that they’re choosing between. And the thing is, I think once they start to care about price, then suddenly quality will become more important, and they’ll be like, “Oh, is it worth spending more to go to this one that has a better reputation, but is it actually better?” And then that gets them to start thinking about the quality and price of their options. It pushes them toward making value-sensitive decisions.
But the first requirement, multiple options, obviously requires antitrust legislation to be firmly in place. If one company owns all the providers in the area, that’s not exactly multiple options. So competition of just having multiple options—and of course, this is not possible in many places. A rural area can only support one hospital; we understand that and that’s fine. But part of this that people don’t often realize is that, sure, even though we do have multiple options in many larger areas where there’s a greater population, they’re all paid the same amount by Medicare or close to it, so they have all the same price, essentially. And even if you have multiple companies running different hospitals, but they’re all paid the same, that’s not fully multiple options. That doesn’t give an option for a hospital to say, “You know what, we’re going to go slightly lower quality and build a hospital that doesn’t have a giant, gorgeous entryway, and we’re just going to make it as cheap as possible, and our prices will reflect that, and we’ll still get as high quality as we possibly can in all the ways that are important.” But no hospital has a way to do that because they’re kind of set with their prices. And so there’s not as much flexibility in varying your value proposition to patients. So that’s the first requirement: multiple options. And there’s not a ton we can do there other than prevent giant companies from buying up all the hospitals in an area.
The second one is really the big challenge. We’ve already talked about the third: getting insurance plans to make patients pay more when they choose a more expensive provider or insurance plan. The second one, I think there’s a lot of room for how we move forward and how we change our health care system that can enable this. Again, those three steps are: have multiple options, be able to identify upfront the value of each option, and then have the incentive to choose the highest-value option.
Being able to identify the highest-value option—that’s really hard right now. For one, we don’t have good quality metrics that patients actually care about that are truly relevant to them when they’re making a decision about which provider they go to. So starting to shift the quality metrics from what they are currently—which are helpful in some ways but are mostly a waste of time, honestly—shifting quality metrics that are tracked and reported to be stuff that will actually help patients identify the higher-value options, that’s huge. And then on the price side, finding a way to get patients to know beforehand how much they will have to pay, which is the thing that we talked about last time: bundled pricing, where there are multiple services that are in a care episode, and you just bundle the cost of all of those together and say, “This is the price for all of them, and this is what you’ll pay if there’s a complication and it requires more services—we cover that. We’ve accounted for that in our price.” So getting patients to be able to see the price up front.
I should acknowledge that there are probably people thinking right now, “Well, what about emergencies?” or “There are all these other barriers that we can’t eliminate,” and it’s true. And just a big-picture point is that we don’t have to get rid of every single barrier to patients making value-sensitive decisions and get them to do it in the most rational way every single time. That’s not needed. What we need is enough value-sensitive decisions, and once we have enough, it will create that incentive scheme that will create the innovation and competition toward higher and higher value. So if we don’t do it perfectly, that’s OK. And that’s probably a great relief to a lot of people who are hearing this and are thinking, “OK, that’s a great idea, but it’s never going to happen.” Oh, we can do it. We see it in every other industry: there are people all the time who don’t make value-sensitive decisions, but those industries still work and have the right incentives.
Kevin Pho: So in order to shift to a value-based incentive system like the one you described—and I know Medicare is making small steps toward that with their shift toward value-based payments—how far are we away? We have predominantly a fee-for-service system, and it feels like it’s almost changing the course of the Titanic. How far are we away from what you described?
Taylor Christensen: We are close in some ways and very far in other ways; I guess that would be the nuanced answer because there are certain changes that can enable a lot more value-sensitive decisions that would be fairly easy to implement. Changing which quality metrics we track and putting them on a website that everybody can see—that’s doable. A lot of bundled payment ideas and reference pricing, and there are these different ways to get patients to know the price upfront and to make them pay a little more if they choose a higher cost—they’re all happening; it’s just that they’re not happening very quickly. Some of these are already happening, and just pushing them forward a little faster wouldn’t be that difficult.
But then there are other things that I think will be a tough sell, like finding a way to allow pricing flexibility when a giant percentage of most hospitals’ care is paid for by Medicare or Medicaid, and either way, it’s set prices administratively. Finding a way to shift those huge insurance providers to a little more flexibility with the prices they pay through individual negotiations is going to be really hard. I think those really difficult ones, sure, will help. But even if we don’t achieve those and we achieve the easier-to-change ones that I’ve already listed, those are very doable, and I think that will be enough.
Kevin Pho: We’re talking to Taylor Christensen. He’s an internal medicine physician and health policy researcher. Today’s KevinMD article is “The Barriers to Patients Choosing Higher Value Providers and Insurers.” Taylor, as always, let’s end with some take-home messages that you want to leave with the KevinMD audience.
Taylor Christensen: Thank you. Yeah, I want to leave a hopeful message that we can fix our health care system. We can. I’ve only talked about two of the three issues here today; there’s the iron triangle, it’s often called: there’s the quality of care we receive, the prices we’re spending, and then access to care. I haven’t talked about the access part, so nothing that I’m saying will completely resolve our issues over access other than, as prices go down, that does price more people into the system, but that’s probably not enough.
The hopeful thing I want to leave with everyone is that we can have a huge improvement in our prices and our quality of care delivered by our health care system. And it’s very doable to achieve that if we can make these simple changes that I’ve talked about that can enable those three requirements to all be fulfilled so that patients can make value-sensitive decisions. And again, those three steps are: one, having multiple options; two, being able to identify beforehand the quality and price of each option, which means identify the value of each option; and then three, have an incentive to consider both price and quality so they are actually incentivized to choose the highest-value option.
If we make some simple changes to enable more value-sensitive decisions like that, we will start to see the companies in the health care industry respond to those incentives like companies do, and they will start to improve their value once they’re forced to financially, to be able to win more profit as a result of patients starting to care about which ones are higher value.
It’s doable, especially when, in the near term, we have the same political party in control of the presidency and both parts of Congress. It’s something that’s very doable for politicians to pass, and I guess I hope that they’ll learn some of these things so they can pass some of them, and then we can see what the results are and hopefully become a model for other countries, like we are in so many other ways in the united states.
Kevin Pho: Taylor, thank you so much for sharing your perspective and insight, and thanks again for coming back on the show.
Taylor Christensen: Thanks so much for having me back.
