The BioLaw and Health Policy Society recently hosted Alain Enthoven, a core faculty member at Stanford’s Center for Health Policy/Primary Care and Outcomes Research. He is known as “the father of managed competition” and has advocated a financially integrated healthcare delivery system that relies on market-based incentives to reduce medical costs and increase economic accountability and quality of care. Prof. Enthoven identified cost, quality, and access as the three primary challenges facing the healthcare system. Currently, a staggering 45-90K patients die each year from hospital errors and children receive only 47% of the care that is recommended for them (adults do not fare much better, as they receive only 55% of the recommended care). Delivery is dominated by Fee-for-Service (FFS) providers in small practices that do not coordinate and overuse unevaluated new technologies.  The increased prevalence of treatable chronic disease coupled with the shifting of costs from the uninsured to the insured has further compounded rising healthcare costs.

Prof. Enthoven summarized the problems as growing out of cost-unconscious demand unconstrained by global budgets. He argued that FFS rewards bad quality, incentivizes the overuse of tests, rewards avoidable care, is oriented towards acute rather than chronic care, lacks capability for improvement, reinforces wide variations in practice patterns, and entrenches poor information technology systems because there’s no business case for investing in new technology systems. Additionally, he argued that the Employer Based Insurance (EBI) system is broken. As employers develop more generous plans to lure employees, they make employees cost unconscious and lock them into fee-for-service costs while silently depressing wages to pay for these benefits.

Prof. Enthoven’s solution is universal healthcare based on competition among accountable care systems (ACS). Kaiser is the best current example of such a system.  ACS provide informed cost-conscious consumers with higher value care for their money. The systems reward good behavior (e.g. effective data transfer) and hold providers accountable for outcomes, thereby yielding improvements in quality as well as controlling the costs of care. There are multiple candidates for the ACS role: multi-specialty group practices, hospital medical staff organizations, physician hospital organizations (PHOs), independent physician associations (IPAs), and health plan provider organizations (HPOs).

Integrated Delivery Systems (IDSs) can cost 30% less than their traditional counterparts when employers offer cost conscious choices and employees are able to keep the savings. Although IDSs align incentives, emphasize primary care, stress early detection and prevention, manage chronic disease, and implement effective procedures based on cutting edge knowledge, most employers don’t offer an IDS. Why?  Motivated by self-interest and traditional norms of autonomy, doctors and patients resist change. A significant obstacle to achieving managed competition is the lack of autonomy that patients will have regarding key aspects of their care e.g. they must remain in the system in one of the available plans.

Managed competition provides people with information in an organized, comparison-fostering format that makes it easy for people to choose and switch plans, charges amounts that equalize risk, standardizes coverage, and forces reporting of information about quality. Some of the proposals for how to put managed competition systems into practice are the Breaux-Thomas model for Medicare, the Healthy Americans Act, and the Dutch model of mandated participation. Prof. Enthoven has worked with the Committee for Economic Development to develop a plan to phase-in mandatory exchanges (beginning with small employers), cap the tax break after reaching the critical number necessary for an efficient plan, and replace employer contributions with universal premium credits for the low-priced plan. The low cost plan will be free and people can elect to pay more for the more expensive version. There may be a slight penalty if people do not sign up for healthcare coverage.

Additionally, Prof. Enthoven argued for an independent, well-funded National Institute for Technology Assessment to assess effectiveness of treatments. The organization’s output would be objective evaluations/information NOT coverage decisions. The delivery system would make the decision regarding ultimate use.

Prof. Enthoven concluded with the observation that 50 years of experience should show that piecemeal solutions don’t work. EBI can’t produce sustainable expenditure growth rates or an outcome-based system with aligned incentives. The key will be to shift the culture of autonomy to have doctors, patients and Congressional decision makers adopt significant changes.

— Vinita Kailasanath