Web-exclusive: New rules for the game
Skip to main content
MDHC_Logotype_white
Subscribe
  • My Account
  • Login
  • Subscribe
  • News
    • This Week's News
    • COVID-19
    • Providers
    • Insurance
    • Government
    • Finance
    • Technology
    • Safety & Quality
    • People
    • Regional News
    • Digital Edition
    • Biden to reopen 'Obamacare' markets for COVID-19 relief
      Hospitals push CMS to pause 'most favored nation' drug-pricing rule
      Prime Healthcare settles with union workers, agrees to $458,000 in backpay
      Biden administration warns fully meeting vaccine demand could take 'months'
    • Biden to reopen 'Obamacare' markets for COVID-19 relief
      Biden administration warns fully meeting vaccine demand could take 'months'
      Hospital system rebuked after offering vaccine to donors
      Thousands of Portland's healthcare workers not vaccinated
    • Thousands of Portland's healthcare workers not vaccinated
      Ascension’s St. Mary’s Hospital Surgery Center at Towne Centre and Allegheny Health Network’s Bethel Park surgery center
      Hospitals see opportunity, risk in ambulatory surgery centers
      Health suffers as rural hospitals close
      Medicare ACO participants fell in 2021
    • Billing, antitrust exemption changes upend negotiations between insurers and providers
      MAIN-Health Bill_iStock_i.jpg
      Insurance-tech firm MultiPlan makes $155M buy after blank-check deal
      Last-minute COVID costs cut into UnitedHealthcare's $396 million operating income
      CMS approves rule forcing insurers to ease prior authorization
    • Biden to reopen 'Obamacare' markets for COVID-19 relief
      Hospitals push CMS to pause 'most favored nation' drug-pricing rule
      Regulation Tracker: Biden reviews Trump's final rules
      Hospital system rebuked after offering vaccine to donors
    • Anthem's Q4 profits drop 41% with added COVID costs, patient care
      jesse ford salud revenue partners headshot
      Sponsored Content Provided By Salud Revenue Partners
      How to succeed on self-pay: think ‘balance integrity’
      KPMG says deal activity will stay high in '21: 10 takeaways
      By the Numbers: 20 largest healthcare investment banks in 2020
    • Studies extend hopes for antibody drugs against COVID-19
      Google to convert office space for COVID-19 vax clinics
      Next Up Podcast: What to expect with telehealth and healthcare technology in the next 4 years - Transcript
      Dr. Karen DeSalvo
      Next Up Podcast: What to expect with telehealth and healthcare technology in the next four years
    • Amid COVID health worker shortage, foreign-trained professionals sit on sidelines
      China pushes conspiracy theories on COVID origin, vaccines
      Avocado
      Avocado a day keeps the doctor away
      50% of Americans make resolutions. Fewer than 27% keep them over time.
      Data Points: Sticking with your resolutions
    • Humana names first chief equity officer
      WEb_i.jpg
      Q&A: Dr. Cliff Megerian, University Hospitals' soon-to-be CEO
      ZentyWeb_i.jpg
      Tom Zenty is leaving a legacy of transformational growth at University Hospitals
      Cerner names Erceg as new CFO
    • Midwest
    • Northeast
    • South
    • West
  • Insights
    • ACA 10 Years After
    • Best Practices
    • InDepth Special Reports
    • Innovations
    • The Affordable Care Act after 10 years
    • New care model helps primary-care practices treat obesity
      doctor with patient
      COVID-19 treatment protocol developed in the field helps patients recover
      Rachel Wyatt
      Project to curb pressure injuries in hospitals shows promise
      Yale New Haven's COVID-19 nurse-staffing model has long-term benefits
    • Michellene Davis
      Healthcare leadership lacks the racial diversity needed to reduce health disparities
      Dr. James Hildreth
      How medical education can help fight racism
      Modern Healthcare InDepth: Breaking the bias that impedes better healthcare
      Videos: Healthcare industry executives describe their encounters with racism
      Quotes from rebadged employees
      Outsourcing IT, revenue cycle takes toll on internal culture
    • A phone screen showing the question, "Mary we hope this information was helpful and we'd like to keep guiding you. Are you interested in knowing when it's your turn to receive the vaccine?"
      Chatbots, texting campaigns help manage influx of COVID vax questions
      A woman with a wearable sensor talking to her provider.
      Wearable sensors help diagnose heart rhythm problems in West Virginia
      self service station
      COVID-19 pushes patient expectations toward self-service
      Targeting high-risk cancer patients with genetics
  • Transformation
    • Patients
    • Operations
    • Care Delivery
    • Payment
    • Highmark Health inks six-year cloud, tech deal with Google
      Study: 1 in 5 patients report discrimination when getting healthcare
      HHS proposes changing HIPAA privacy rules
      Android health records app launches at 230 health systems
    • California hospitals prepare ethical protocol to prioritize lifesaving care
      Amazon, JPMorgan Chase, Berkshire Hathaway disband Haven
      Digital pathways poised to reshape healthcare continuum in 2021
      Healthcare was the hardest hit by supply shortages across all U.S. industries
    • A phone screen showing the question, "Mary we hope this information was helpful and we'd like to keep guiding you. Are you interested in knowing when it's your turn to receive the vaccine?"
      Chatbots, texting campaigns help manage influx of COVID vax questions
      A woman with a wearable sensor talking to her provider.
      Wearable sensors help diagnose heart rhythm problems in West Virginia
      New care model helps primary-care practices treat obesity
      How hospitals are building on COVID-19 telehealth momentum
    • Regional insurers bet big on virtual-first plans
      MedPAC votes to boost hospital payments, freeze or cut other providers
      Most Next Gen ACOs achieved bonuses in 2019
      Congress recalibrates Medicare Physician Fee Schedule after lobbying
  • Data/Lists
    • Rankings/Lists
    • Interactive Databases
    • Data Points
    • Health Systems Financials
      Executive Compensation
      Physician Compensation
  • Op-Ed
    • Bold Moves
    • Breaking Bias
    • Commentaries
    • Letters
    • Vital Signs Blog
    • From the Editor
    • Wellstar CEO calls adapting for the pandemic her bold move
      Howard P. Kern
      Recognizing the value of telehealth in its infancy
      Dr. Stephen Markovich
      A bold move helped take him from family doctor to OhioHealth CEO
      Dr. Bruce Siegel
      Why taking a hospital not-for-profit was Dr. Bruce Siegel’s boldest move
    • Barry Ostrowsky
      Ending racism is a journey taken together; the starting point must be now
      Laura Lee Hall and Gary Puckrein
      Increased flu vaccination has never been more important for communities of color
      John Daniels Jr.
      Health equity: Making the journey from buzzword to reality
      Mark C. Clement and David Cook
      We all need to 'do something' to fight inequities and get healthcare right, for every patient, every time
    • The missing piece in our fight against COVID-19: primary care
      Ambulatory surgery centers offer extraordinary value in a high-cost healthcare system
       Alan B. Miller
      Looking ahead with optimism as we continue to transform healthcare
      Dr. Bruce Siegel
      By protecting the healthcare safety net, Biden can put us on the path to a stronger country
    • Letters: Eliminating bias in healthcare needs to be ‘deliberate and organic’
      Letters: Maybe dropping out of ACOs is a good thing for patients
      Letters: White House and Congress share blame for lack of national COVID strategy
      Letters: VA making strides to improve state veterans home inspections
    • Sponsored Content Provided By Optum
      How blockchain could ease frustration with the payment process
      Sponsored Content Provided By Optum
      Three steps to better data-sharing for payer and provider CIOs
      Sponsored Content Provided By Optum
      Reduce total cost of care: 6 reasons why providers and payers should tackle the challenge together
      Sponsored Content Provided By Optum
      Why CIOs went from back-office operators to mission-critical innovators
  • Awards
    • Award Programs
    • Nominate
    • Previous Award Programs
    • Other Award Programs
    • Best Places to Work in Healthcare Logo for Navigation
      Nominations Open - Best Places to Work in Healthcare
      Nominations Closed - Health Care Hall of Fame
      Nominations Open - 50 Most Influential Clinical Executives
    • 100 Most Influential People
    • 50 Most Influential Clinical Executives
    • Best Places to Work in Healthcare
    • Health Care Hall of Fame
    • Healthcare Marketing Impact Awards
    • Top 25 Emerging Leaders
    • Top 25 Innovators
    • Top 25 Minority Leaders
    • Top 25 Women Leaders
    • Excellence in Nursing Awards
    • Design Awards
    • Top 25 COOs in Healthcare
    • 100 Top Hospitals
    • ACHE Awards
  • Events
    • Conferences
    • Galas
    • Webinars
    • COVID-19 Event Tracker
    • ntt data logo lockup webinar
      Sponsored Content Provided By NTT DATA
      Webinar: Mistakes I’ve Made — Confessions of a Healthcare Cybersecurity Expert
      bright.md logo lockup webinar
      Sponsored Content Provided By Bright.md
      Webinar: Enabling a hybrid care model — Streamlining the patient path to both telehealth and in-person care
    • Leadership Symposium
    • Healthcare Transformation Summit
    • Women Leaders in Healthcare Conference
    • Workplace of the Future Conference
    • Strategic Marketing Conference
    • Social Determinants of Health Symposium
    • Best Places to Work Awards Gala
    • Health Care Hall of Fame Gala
    • Top 25 Minority Leaders Gala (2022)
    • Top 25 Women Leaders Gala
  • Listen
    • Podcast - Next Up
    • Podcast - Beyond the Byline
    • Sponsored Podcast - Healthcare Insider
    • Video Series - The Check Up
    • Sponsored Video Series - One on One
    • Dr. Karen DeSalvo
      Next Up Podcast: What to expect with telehealth and healthcare technology in the next four years
      Carter Dredge
      Next Up Podcast: Ready, set, innovate! Innovation and disruption in healthcare
      Next Up Podcast: COVID-19, social determinants highlight health inequities — what next?
      Ceci Connolly
      Next Up Podcast: How to navigate the murky post-election waters
    • Beyond the Byline: Regulators aim to boost value push with fraud and abuse law updates
      An older man wearing a mask receiving a vaccine.
      Beyond the Byline: Verifying information on the chaotic COVID-19 vaccine rollout
      doctor burnout
      Beyond the Byline: How healthcare supply chain struggles contribute to employee burnout
      Beyond the Byline: Covering race and diversity in the healthcare industry
    • Leading intention promote diversity and inclusion
      Introducing Healthcare Insider Podcast
    • The Check Up: Dr. Joseph Kerschner
      The Check Up: Dr. Joseph Kerschner of the Medical College of Wisconsin
      The Check Up: Chip Kahn
      The Check Up: Chip Kahn of the Federation of American Hospitals
      The Check Up: Trenda Ray
      The Check Up: Trenda Ray of the University of Arkansas for Medical Sciences
      The Check Up: Dr. Kenneth Davis
      The Check Up: Dr. Kenneth Davis of Mount Sinai Health System
    • Video: Ivana Naeymi Rad of Intelligent Medical Objects
  • MORE +
    • Advertise
    • Media Kit
    • Newsletters
    • Jobs
    • People on the Move
    • Reprints & Licensing
MENU
Breadcrumb
  1. Home
  2. News
December 20, 2004 12:00 AM

Web-exclusive: New rules for the game

Overcoming three failures of the U.S. healthcare system will improve the quality of care

Warren Greenberg
  • Tweet
  • Share
  • Share
  • Email
  • More
    Print

    To achieve a more efficient healthcare system as well as improve quality of care, providers and health plans must compete on quality, not just price.

    Some brand-name competition over quality does exist among a handful of academic medical centers and prestigious organizations such as Mayo Clinic and Memorial Sloan-Kettering, but those are exceptions. Physicians, meanwhile, rarely compete by disseminating information on outcomes, leaving patients to rely on uncertain Internet-based physician quality rankings. And health plans generally do not compete on quality-of-care attributes of their services or the performance of physicians and hospitals in their networks. This failure to compete is a driving factor behind the statistics on poor quality of care across the U.S. healthcare system.

    Nobel Prize winning economist George Akerlof has shown that incentives are necessary for organizations to compete on quality. In his famous example of the used car market, buyers who aren't given information on the quality of the cars will focus only on cost, unwilling to pay more for used automobiles of unknown quality.

    In healthcare, three main failures account for the lack of competition on quality. They are:

    * The failure to tax employer-paid health benefits. If taxed, employer-paid health insurance would begin to be less common. An individual-based health insurance system without the involvement of employers would be much more conducive to the introduction of quality of care in the marketplace. That's because with today's highly mobile workforce, where job turnover is between 12% and 16% per year (higher in agriculture, construction and personal services), there is little incentive for employers to invest in health plans that provide good preventive care and superior treatment that may result in lower costs later on. With high turnover, subsequent payers would reap the benefits of improved quality of care, taking advantage of the greater investment of the initial employer and health plan. Furthermore, employers have little incentive to invest in individuals who are about to retire due to disability or age.

    In contrast, if there were an individual-based health insurance system people would retain their health plan whether employed with a firm, self-employed, unemployed, retired or disabled. Individuals would choose a health plan during a yearly open-enrollment period. They would buy health coverage in the same way that they purchase automobile insurance, without regard to employment status. Income-adjusted premiums may be needed to help those with lesser incomes if universal coverage is desired.

    Individual-based health insurance is frequently found in many European countries and Israel. In an individual-based system, individuals might belong to a healthcare plan for many years or decades. There would be greater incentives for the health plan to invest in quality of care to save in the long run. Precautions will be needed, however, to ensure that health plans are not avoiding high-risk enrollees.

    * Adverse risk selection. If health plans were to compete on a quality-of-care basis, the plans that provided the highest quality of care would attract the highest-risk enrollees in the open-enrollment period, increasing their costs. Therefore, a risk-adjusted payment should be applied to each competing health plan. Such payments have been used to prevent cream-skimming, including through the Medicare and Medicaid programs. Plans seeking higher payment will have incentives to improve quality of care for high-risk individuals.

    However, achieving a perfect risk-adjustment payment has been difficult. Most such mechanisms have been able to account for only some two-thirds of the maximum predictable variance of about 15% to 20% in individual health expenditures. Most variance is unpredictable. The Medicare program uses the "principal inpatient diagnostic cost groups" approach, which includes the principal diagnosis that has the highest predictable future costs. The measure also includes age, gender and original reasons for Medicare entitlement.

    Whatever the approach, health plans would be reimbursed by a neutral party (such as the government) based on the number and severity of risk of individuals enrolled. Each health plan would be required to pay into a pool to finance payments to plans with relatively high shares of high-risk individuals.

    With adverse risk selection neutralized, competition will begin to take the form of the department store-style competition suggested by economics Nobel laureate George Stigler more than 40 years ago. Brand names will begin to develop for health plans in ways that Saks Fifth Avenue, Bloomingdale's, K-Mart and Wal-Mart have developed in retailing. That is, some health plans will begin to develop a reputation for quality of care, some will emphasize price, some will compete on amenities such as convenience and well-maintained facilities, and some will compete on a mix of quality and price. In this way, one could select a health plan without the need to evaluate extensively its local physicians and hospitals because it would deliver an expected level of service. Boutique health plans may even enter the market to appeal to those with special health needs. Akin to department stores, one might find health plans guaranteeing the quality of services delivered such as the accuracy of blood tests, imaging or other procedures.

    Health plans would be reimbursed retrospectively while individuals would choose health plans based on their premiums and their perceived quality. Premiums may vary among health plans; plans that have experienced lower costs and can provide healthcare services more efficiently would have lower premiums.

    * "Any willing provider" laws. Many states have passed laws that prohibit selective provider contracting by health plans. In the system I am describing, these laws would detract a health plan's ability to market itself emphasizing cost and/or quality. Reduced costs may be achieved by playing providers off against one another in order to achieve increased volume and lower costs. Improved quality can be maintained by contracting only with a limited number of hospitals and physicians whose increased volume may translate into higher quality.

    Recently, the Supreme Court ruled that state any-willing-provider laws are constitutional. So far 17 states have enacted such laws to prevent selective contracting with physicians, while 13 states have passed such laws in regard to hospitals. Healthcare expenditures have been shown to be much higher in these states, all things held constant. No studies have shown the effects of selective contracting on quality, but there are a large number of studies which have shown a negative relationship between increased volume of surgical procedures and case-mix adjusted mortality rates.

    Eliminating each of these three problems is essential to achieving true competition in healthcare, which in turn will make providing high quality of care a reality. Each is interrelated with the others, so all must be fixed.

    Warren Greenberg is a professor of health economics in the Department of Health Policy at George Washington University, Washington.

    Letter
    to the
    Editor

    Send us a letter

    Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

    Recommended for You
    Beyond the Byline: Texas COPA law may pave the way for more hospital M&A - Transcript
    Beyond the Byline: Mining data on insurers' pandemic profits - Transcript
    Sponsored Content
    Get Free Newsletters

    Sign up for free enewsletters and alerts to receive breaking news and in-depth coverage of healthcare events and trends, as they happen, right to your inbox.

    Subscribe Today

    The weekly magazine, websites, research and databases provide a powerful and all-encompassing industry presence. We help you make informed business decisions and lead your organizations to success.

    Subscribe
    Connect with Us
    • LinkedIn
    • Twitter
    • Facebook
    • RSS
    • Instagram

    Stay Connected

    Join the conversation with Modern Healthcare through our social media pages

    MDHC_Logotype_white
    Contact Us

    (877) 812-1581

    Email us

     

    Resources
    • Contact Us
    • Advertise with Us
    • Ad Choices Ad Choices
    • Sitemap
    Editorial Dept
    • Submission Guidelines
    • Code of Ethics
    • Awards
    • About Us
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Modern Healthcare
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • News
      • This Week's News
      • COVID-19
      • Providers
      • Insurance
      • Government
      • Finance
      • Technology
      • Safety & Quality
      • People
      • Regional News
        • Midwest
        • Northeast
        • South
        • West
      • Digital Edition
    • Insights
      • ACA 10 Years After
      • Best Practices
      • InDepth Special Reports
      • Innovations
    • Transformation
      • Patients
      • Operations
      • Care Delivery
      • Payment
    • Data/Lists
      • Rankings/Lists
      • Interactive Databases
      • Data Points
    • Op-Ed
      • Bold Moves
      • Breaking Bias
      • Commentaries
      • Letters
      • Vital Signs Blog
      • From the Editor
    • Awards
      • Award Programs
        • 100 Most Influential People
        • 50 Most Influential Clinical Executives
        • Best Places to Work in Healthcare
        • Health Care Hall of Fame
        • Healthcare Marketing Impact Awards
        • Top 25 Emerging Leaders
        • Top 25 Innovators
        • Top 25 Minority Leaders
        • Top 25 Women Leaders
      • Nominate
      • Previous Award Programs
        • Excellence in Nursing Awards
        • Design Awards
        • Top 25 COOs in Healthcare
      • Other Award Programs
        • 100 Top Hospitals
        • ACHE Awards
    • Events
      • Conferences
        • Leadership Symposium
        • Healthcare Transformation Summit
        • Women Leaders in Healthcare Conference
        • Workplace of the Future Conference
        • Strategic Marketing Conference
        • Social Determinants of Health Symposium
      • Galas
        • Best Places to Work Awards Gala
        • Health Care Hall of Fame Gala
        • Top 25 Minority Leaders Gala (2022)
        • Top 25 Women Leaders Gala
      • Webinars
      • COVID-19 Event Tracker
    • Listen
      • Podcast - Next Up
      • Podcast - Beyond the Byline
      • Sponsored Podcast - Healthcare Insider
      • Video Series - The Check Up
      • Sponsored Video Series - One on One
    • MORE +
      • Advertise
      • Media Kit
      • Newsletters
      • Jobs
      • People on the Move
      • Reprints & Licensing