Greater Choice, Satisfaction Would Result from System Reform

Published January 1, 2009

Excerpt from The Handbook on State Health Care Reform, coauthored by John C. Goodman, Michael Bond, Devon M. Herrick, Gerald L. Musgrave, Pamela Villarreal, and Joe Barnett.

What would life be like in the U.S. health care system with the reforms we have proposed in this series?

Remember, ours is a bottom-up approach. We don’t tell people what to do. We change incentives and let people pursue their own interests. So we can only speculate on what would happen. The following anecdotes are some reasonable speculations.

Providers Seeking Patients

Cheryl Green is a diabetic. Dealing with her diabetes is not easy. Her daily routine consists of testing her blood glucose four times and taking appropriate action when needed.

For difficult-to-control blood-sugar spikes, she has to inject herself with a combination of two different formulations of insulin, usually four times a day. In addition, she takes oral doses of Actos and Metformin twice a day to control Type-2 diabetes, plus daily aspirin and Lipitor to control cholesterol, and a beta blocker to control blood pressure.

In the old days, Cheryl made many trips to see her endocrinologist, Dr. Chris Reeder, and when he was not available, to the hospital emergency room. These days, trips to either place are rare. If Cheryl wants to ask Dr. Reeder a question today, she picks up the telephone or sends an e-mail. She almost always gets a prompt response.

Even if she didn’t care about the time involved, Cheryl has financial reasons to guide her use of the health care system. She pays for doctor visits, emergency room visits, phone calls, and e-mails from her health savings account (HSA), and phone calls and e-mails are the cheapest alternatives.

Cheryl didn’t exactly find Dr. Reeder. He found her, in a diabetic-patient chat room on the Internet. In the past, most endocrinologists avoided patients such as Cheryl (too many problems, too little money), but Reeder actively solicited her business. Although she was skeptical at first, she took a chance.

Doctor-Patient Cooperation

It was the best decision she ever made. At the outset, Dr. Reeder encouraged Cheryl to buy a device to monitor her own blood glucose level and showed her how to use it. (If her condition worsens, her blood glucose readings can be transmitted to a monitor in Reeder’s office.)

Dr. Reeder also taught her how to shop for drugs on the Internet and cut her medication costs in half. Cheryl learned early on that Dr. Reeder’s services are not free. She pays for his time. But he has saved her more money than she has paid him, by teaching her how to manage her own diabetic care and lower her prescription drug costs.

Now, other doctors are soliciting Cheryl’s business. In fact, she’s never been more popular with doctors.

Dr. Reeder wasn’t always able to treat diabetic patients the way he treats Cheryl. Everything changed when he made an offer to Medicaid and the agency accepted it. In a nutshell, Reeder receives a monthly fixed fee from Medicaid; plus, Cheryl and patients like her pay him based on his time.

Patient-Managed Care

The only way to make the arrangement profitable is for Dr. Reeder to teach patients how to manage their own care. As part of the overall arrangement, Reeder acts as a care coordinator for Cheryl—a personal guide to the health care system. If she experiences high blood pressure, develops heart disease, or experiences vision problems, it is Reeder’s job to help Cheryl find the appropriate specialists and get the appropriate treatment.

Reeder is the one individual responsible for all diabetic care and all collateral services for Cheryl Green. He is also responsible for the overall results.

The initial arrangement with Medicaid required Reeder to show the state was saving money and the quality of care (as measured by objective criteria) had improved. The burden of proof was on him, not on the state. One of the biggest problems with chronic care, however, is patient compliance with treatment protocols. AIDS patients, cancer patients, heart patients, diabetics, asthmatics—all have persistent compliance issues.

Complying with a treatment regime is expensive, time-consuming, and no fun. So Reeder carefully monitors his patients’ prescription drug use, blood glucose levels, and other indicators of care. He uses moral suasion. He also helps patients understand compliance saves them money.

Reeder knows the more successful he is, the more patients he will attract and the more money he will make.

Greater Freedom to Choose

Under the old system, a patient like Cheryl would have been on Medicaid only temporarily, so it would not have been worthwhile for a doctor like Reeder to form a long-term relationship with her.

Under the new system, by contrast, Medicaid provides Cheryl with “premium support.” As her income rises, Medicaid’s support diminishes, but it doesn’t abruptly vanish. Also, Cheryl is able to apply her “premium support” to any private plan. She chose Blue Cross.

Now Cheryl makes so much money she no longer gets assistance from Medicaid. But she is still enrolled in her Blue Cross plan. Under the state’s small group reform system, Cheryl can take her Blue Cross plan with her to any new employer.

Of course, even under the new system, Reeder was taking a risk investing in a long-term relationship with Cheryl. And even though Medicaid liked the arrangement, there was no guarantee Blue Cross would. But Reeder has found private insurers are far more receptive than they once were.

The reason: If Medicaid has determined Reeder’s arrangement lowers cost and raises quality, the relationship is likely to benefit Blue Cross as well.

Incentive for Results

Cheryl’s daughter, Karen, has asthma. Back when Cheryl was uninsured, severe asthma attacks prompted many trips to hospital emergency rooms. Cheryl discovered very few specialists in her neighborhood wanted to see patients like Karen because of the low payment rates through the State Chidlren’s Health Insurance Program. So Karen continued to go to an emergency room for most of her care.

All of this changed when Cheryl met Dr. David Brooks. Like Chris Reeder, Brooks has a relationship with SCHIP that is different from other doctors. He gets paid more money in return for providing higher-quality care that costs the state less money. Nor does he have to shuffle any papers.

In Karen’s case, he receives a payment from SCHIP that is automatically deposited to his bank account, and he receives payments from Karen’s HSA (managed by Cheryl), in the form of automatic debits, based on his time.

Freedom, Creativity, Innovation

Like Chris Reeder, David Brooks knows he can’t make money seeing patients like Karen unless he can get better results for less money. So he persuaded Cheryl to use Karen’s HSA money to buy a device that monitors Karen’s peak air flow. He also showed Cheryl how to use the device, how to change Karen’s drug regime when needed, and how to distinguish serious symptoms really requiring an emergency room visit from less-urgent ones that don’t.

Like Dr. Reeder, Dr. Brooks accepts phone calls and e-mail messages from Cheryl and answers her questions promptly. He charges her for the time, and Cheryl is glad to pay—knowing she is saving both time and money by relying on telephone and e-mail consultations rather than the alternatives.

Under the old system, Karen would lose her SCHIP coverage (and possibly also her relationship with Dr. Brooks) once her mother’s income reached a threshold level. But the state’s SCHIP program has been converted to a premium support system. Karen is now able to join any health plan, and she will enroll under her mother’s Blue Cross policy. As Cheryl’s income grows, the state subsidy will ebb until eventually the Greens will be on their own.

Karen’s relationship with Dr. Brooks will continue, however. Blue Cross has decided since Brooks’s style of practice saves money for Medicaid, it also will save money for Blue Cross.

Unlimited Potential

These are only a few of the changes we can imagine in a reformed health care system.

Fortunately, the full extent of the potential change is not limited by our imagination. It is limited only by the range and scope of the ingenuity of 300 million Americans—all of whom would be free to use their creativity and their innovative ability to solve health care problems—unshackled by the dysfunctional bureaucratic and regulatory obstacles of the current system.

John C. Goodman ([email protected]) is president of the National Center for Policy Analysis. His health care blog is at

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