Pareto proportions in healthcare
By Richard Mayhew
Health care finance and utilization is a Pareto curve. A small minority of people drive the vast majority of costs and utilizations. Conversely, most people are minimal users of healthcare services in any given year. This means there are two very distinct strategies that should promote good outcomes. But first, let's look at a great graph via Martin Gaynor:
Why consumers won't drive the #healthcare market. Most costs from high $ people who are beyond cost sharing. http://pic.twitter.com/buoAM00CPT
— Martin Gaynor (@MartinSGaynor) December 10, 2015
For people on the left hand side of the graph, they are relatively healthy and relatively low users. They'll be using primary care providers, urgent cares, low end prescription drugs, the occasional specialist, the occasional low end surgery and hospitalization. There may be spikes in cost such as a year in which a woman gives birth, but over the medium run, costs and utilization are fairly low because need is fairly low.
Here, consumer driven healthcare could make a decent amount of sense. A co-pay of $50 for an urgent care visit instead of a $25 co-pay for a PCP visit could lead people to make better choices. Reference pricing for simple, straightforward elective surgery could drive people to choose low cost providers. Deductibles may force people to defer care that is not particularly valuable. High deductible health plans paired with health savings accounts are not inherently crazy nor malicious.
However any cost savings here don't matter all that much because the base level of spending is so low to begin with.
The other side of the Pareto curve is where money the real money is.
And there, consumer driven decision making runs into the brick wall of reality. People don't have $50,000 or $100,000 lying around to fix a blown shoulder that happened while mopping in various states of undress. People don't have the ability to continually pay $300,000 per year for preventative hemophilia treatments in the hope that they can avoid a $5 million crisis claim. A deductible will be hit no matter what. Coinsurance and co-pay limits will be hit no matter what.
If we were to fully embrace consumerism for the most expensive 10% to 15% of the population, what we will be telling the chronically ill to do is to buy an ounce or two of morphine, a syringe and a blanket so they can die quickly and quietly in the corner.
We're not going to do that as a society. Instead, we have to do a few different things. The first is the 50 year policy of segregating the group of people who are most likely to have very large claims away from the rest of the population in the form of Medicare and dual eligibility for Medicaid-Medicare. The Federal government picks up a good proportion of the shock claim risk.
But that does not do everything. We put people into the market and hope it works well enough. But that fails. There is no market within a half day drive of the Major Academic Medical Center that can effectively treat certain types of pediatric cancers, so market forces don't work. Administrative forces need to work instead. And that is where things like Accountable Care Organizations, gain-sharing, risk-sharing, population health management, preventative nursing visits and focus chronic disease management programs come into play. The systems, hopefully, are built so that everyone benefits in that the patient gets better quality of life, and the resources devoted to that goal are used effectively and efficiently.
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December 11, 2015 at 07:16AM
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