“I know that we know how to reduce TME, but I don’t know that I know how to reduce TME.” – an amazing Geriatrician, leader, singer and all-around human In Part 3 of the Capturing Value is the Hard Part series, we focused on reducing the price of care to reduce Total Medical Expense (TME). In this part I want to dive into my much more favoritest part, reducing the volume of care. Quick reminder: Cost = Price x Volume But wait, isn’t care good, useful and necessary? Wouldn’t reducing the volume of care then be a bad thing? If only all care were good care. Care volume actually breaks down into 4 buckets, 3 of which are bad: * Fraud * Abuse * Waste * Valuable Care The first 3 buckets are all the volume to be reduced, while the fourth is the whole point of healthcare. The challenge facing us then is how to separate the good from the bad, before the bad care happens. It would stand to reason that all care that is not waste, fraud or abuse, in service of actually improving patient health is therefore valuable. In medicine we call this a diagnosis of exclusion, which gives us a clue on how to make that determination. The payor approach to reducing care volume short-circuits this challenge by simply putting up walls: Co-pays, prior authorizations, administrative delays, restrictive formularies/narrow networks, automated claim denials, even deposing the insured. These strategies make it harder for patients to obtain care by placing obstacles between them and that care. While there is evidence that in the absence of these obstacles, care volume does go up, this approach fundamentally selects for tenacity, not necessity. If the payor says “no” enough times, maybe you will just give up. Maybe you will just die while you wait. The only way to permanently end these practices is to reliably sort good care from bad. Let’s begin with definitions then get into our approach to do just that. Fraud & Abuse Fraud represents phantom volume that is billed for but did not happen or care that did happen under false pretenses such as bribes, kick backs, fabrications etc. Abuse is fraud’s little brother, and represents “bending the rules” such as billing for care that did happen, but was not really necessary. Together they represent always bad care, with an estimated annual cost of $58.5-83.9 billion, which looks like a big number except this is healthcare so just strap in. Claiming to fight fraud and abuse is a preferred pastime of politicians who want to look like they are doing something useful with a whole bunch of political side benefits. The problem is, this presumption of guilt taints all medical payments resulting in $265.6 billion of waste in administrative complexity to fight it. That’s right: we lose $4-5 for every $1 we try to save in fraud prevention. So it is bad, it shouldn’t happen, we should prevent it, but it pales in comparison to the endemic problem of waste. Waste The underlying thesis of Value-based Care (VBC) is that there is enough waste in our system that removing it ought to be a viable business for someone (primary care), with corresponding revenue reductions for everyone else (specialists, hospitals, pharma). Therefore for VBC to “work” a few things need to be true: * Enough waste to justify removing it * The ability to continuously distinguish between waste and valuable care in near real time * The ability to reduce said waste * A value capture mechanism that rewards waste removers Waste represents care that actually happened but did not produce any benefit to patient health, or worse, produced harm. Fortunately for us, Shrank et al did the work to qualify and quantify waste in the US healthcare system with “[t]he estimated cost of waste in the US Healthcare system ranged from $760 billion to $935 billion, accounting for approximately 25% of total health care spending.” So yes, there is enough. Let’s break it down further based on the same paper: Administrative Complexity: $265.6 Billion Time wasted by patients, clinicians and staff in attempts to get care to happen/paid for such as: prior auths, claim rejections, byzantine processes for each payor, excessive documentation requirements Pricing Failure: $230.7 Billion – $240.5 Billion Prices are higher than they would be in a properly functioning, competitive market due to: market consolidation, lack of transparency, “proprietary prices,” exorbitant drug costs Failure of Care Coordination: $27.2 Billion – $78.2 Billion Intended care fails to happen due to: scheduling challenges, transportation issues, no follow up, etc. Over-treatment / Low-Value Care: $75.7 Billion – $101.2 Billion Care delivered that could not have been beneficial due to outdated evidence, defensive medicine, practice bias, etc. Failure of Care Delivery: $102.4 Billion – $165.7 Billion Unsafe, ineffective, harmful or poorly delivered care such as misdiagnoses, hospital acquired infections, medical errors, etc. First off, and perhaps sadly, it is worth noting that most of the available waste is secondary to administrative complexity and pricing failure. However, I maintain that those two factors stem from a fundamental ignorance of the nature of care. This is not an indictment of our forebears, rather a recognition of the current state of medical research, with its emphasis on singular interventions like medications and procedures over complex, continuous services. Because we cannot easily tell good care from bad or “what works” in advance of providing said care, the necessary work of allocating resources toward that care persists. As such, “fixing care” should lead to improvements in these largest, albeit secondary, buckets of waste, so on care we shall focus. Fortunately, we have the most agency here. Waste vs. Valuable Care Care is a messy business on the best of days, and the job of a practitioner is to move through this chaotic ambiguity in a disciplined manner for the benefit of patients. We often get it wrong because we make diagnostic mistakes, treatments have adverse outcomes and even cause harm. We tend to treat these as either individual clinician failures or as an inevitable consequence of medicine’s complexity when they are more often the predictable consequence of a system riddled with open loops. Furthermore, reducing low value care or over-treatment is treated as an evidence problem rather than a systemic problem stemming from perverse payment incentives intertwined with legal liability. While these kinds of waste and harm are the long term targets of our efforts, they currently represent the highest hanging of fruits. The truth is, the underlying delivery of care is so unreliable, so devoid of meaningful feedback, that the most impactful lever to remove waste is to ensure that what care is intended to happen, actually happens: to close the loops. Why bother arguing over which care is correct if it doesn’t get reliably delivered in the first place? Subtraction is first in the order of operational improvement. Think about your last experience as a patient. Did you make it to your doctor’s office? On time? Did you have all the correct paperwork? Did you fill out a form on a clipboard? Did they read it? Was medicine prescribed? Could you pronounce it? Did your pharmacy actually fill it? Did you pick it up and take it? Did anyone check that you did, or if there were side effects or if it worked at all? How about blood work? Did you know where to go? Did you know why blood was being taken? Did they take it properly? Did you get injured? Did you have to repeat the sample draw? Did you ever get your results with an interpretation? Or a specialist referral? Were you told why and where to go? Did the appointment happen or was it canceled? Did you ever hear back after the visit? In all of these very common scenarios: Did you know what to do next? Did anyone check on you proactively or did they instead make you jump through hoops to get help? These are three extremely common care scenarios, each an example of open loops. Now multiply this by every patient, every condition, millions of times per year. It is almost a wonder that anything happens at all. I’d like to think we’ve made considerable progress in the past 20 years, but the complexity of care has outgrown our ability to navigate it. Sadly, patients are left wandering aimlessly around the amusement park. Now think of the consequences of all of these open loops such as tests and procedures canceled, conditions undiagnosed and untreated, cancers growing– all leading to more care down the line. Can you see it now? By not ensuring that what was intended to happen, actually happened, we massively increase the volume of care, which adds more stress to the health system which exacerbates the problem. This volume of care stemming from messed up care is known as failure demand. This is the volume you’ve been looking for. Unfortunately, the prevailing Fee-for-service (FFS) payment system cannot tell the difference between real, valuable demand and failure demand. In fact, many of our large health systems thrive on failure demand, with “good” PCPs costing them up to $300,000 each in reduced volume. Think about how well you would do at your job if you got paid 10x more to fix your mistakes after you messed it up. Similarly, while VBC systems ostensibly reward closing these loops, the current state of the art is to hire more people: care coordinators, case managers, each adding significant cost with their own failure modes. Well intentioned VBC providers spend money upfront (health coaches, software build outs) to close all of these open loops, essentially by doing everyone else’s job for them. But the deck is stacked toward the status quo. Insurance companies get to pass risk onto well-intentioned providers and everyone else either gets paid to have someone else do their job or for continued failure demand. It’s a tough business. Neverth
