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Change the Microenvironment: Delivery System Reform Essential to Controlling Costs

Francis J. Crosson

Commentary on The Commonwealth Fund/Modern Healthcare Health Care Opinion Leaders Survey on Priorities for the Obama Administration by Francis J. Crosson, senior fellow at the Kaiser Permanente Institute for Health Policy

U.S. health care costs are excessive, both by international benchmarks and, by inference, from observation of the degree of cost variation within the U.S., as demonstrated in the Dartmouth Atlas of Health Care.

There are many causes for this cost excess, including population aging and personal health habits such as smoking and poor diet that lead to cardiovascular disease, cancer and diabetes. Particularly important are the continued development and use of expensive new drugs and medical procedures, and a reimbursement system that often rewards the inappropriate as well as the appropriate use of such technology.

To be sustainable over time, any set of national health care reforms must succeed at reducing the rate of increase in health care costs. Expanded health care coverage without average annual healthcare cost increases—which are closer to average annual gross domestic product growth—is not supportable for private insurance or public programs.

Many policy solutions have been proposed or are underway to attempt to reach such a goal. There will need to be many solutions, including some substantial ones, to reduce a cost trend that has resisted all improvement efforts, except for a brief period in the mid-1990s.

In the end, the most effective policy solutions will be those that seek to change, in a positive way, the "microenvironment" within which physicians practice.

It is often joked that the physician's pen is the most expensive technology in healthcare. The cascade of resource use that flows from the decisions physicians make accounts for more than 80 percent of overall health care costs.

In the practice of medicine there is always a "moment of truth" when the physician decides (hopefully with an informed and involved patient) what interventions are most appropriate in the patient's care.

This decision process involves such questions as whether to hospitalize, refer to a specialist, order an expensive imaging procedure, prescribe a new brand-name drug or a therapeutically equivalent generic drug, how often the patient needs follow-up services, and so on.

For any given physician practice, and for the nation as a whole, the pattern of such decisions directly impacts both the quality and cost of the healthcare services Americans receive and ultimately pay for.

Such health care decisions are not made in isolation, but rather within the microenvironment of the physician's office or the patient's bedside.

That environment is influenced by many things, especially the availability of accurate clinical information about the patient's history and the most current medical science, personal financial considerations for the physician, the nature of physician peer-to-peer relationships related to the care of the patient, and the depth and breadth of personal professionalism brought to that moment.

Delivery system reform proposals can be divided into three categories: structural reforms, payment reforms, and tools that enable either or both of the first two categories.

Current structural reform proposals include the medical home, physician-hospital integration, and accountable-care organizations, or ACOs, among others.

Payment reform proposals include care coordination payments, bundled payments to physicians and/or hospitals, pay-for-performance, and other "shared savings" proposals, and various forms of prospective payment or capitation.

Enabling tools include clinical information systems and comparative-effectiveness information. (Comparative-effectiveness information is more likely to be accepted by society as a tool for appropriate clinical decision making rather than as a mechanism for coverage determinations.)

The ultimate utility of such delivery system reforms, alone or in combination, will depend upon, and should be judged by, their ability to positively affect this physician practice microenvironment.

For example, the medical home model is designed, in part, to provide the primary care physician with better information about the patient through the use of an electronic health record and the use of a team of support personnel, to improve care coordination, especially for patients with chronic disease. Care coordination payments provide financial support for the development of such practice capabilities.

Most ACO proposals go further by adding to the medical home model, the cross-specialty professional and financial alignment of a multispecialty group practice or similar delivery model.

The proposals often include more integrated physician–hospital relationships and the opportunity for physician practices to receive and succeed with reformed payment modalities, such as bundled payments, shared savings arrangements, or forms of prospective payment. Such payment modalities are designed to create incentives for appropriate clinical decisionmaking by physicians.

To work well, such structural changes, payment changes, and enabling tools must have, at their base, a rationale designed to influence the physician microenvironment so as to support physicians in developing patterns of clinical decision making that result in better health outcomes and lower costs.

It is important to understand that even a successful national transition to EHRs and a national center to support the creation of better comparative-effectiveness information will have little effect on health care costs unless these tools are employed within a physician practice environment that supports their optimal use.

The culture of "group responsibility" in multispecialty group practice provides such an environment. The use of a nearly "incentive neutral" physician payment methodology, e.g., salary rather than fee-for-service reimbursement, provides such an environment. And the instillation of a strong culture of professionalism through ethical physician leadership creates such an environment.

In the end, the success of national health care reform will depend upon controlling the growth of health care costs.

Health care cost control will depend upon successful delivery system reform. Every element of delivery system reform, structural changes, payment changes, and the development of support tools will need to be designed and coordinated with the other elements so that American physicians, together with their patients, become the responsible and trusted agents of change.

The views presented in this commentary are those of the author and should not be attributed to The Commonwealth Fund or its directors, officers, or staff.

Publication Details



F. J. Crosson, Change the Microenvironment, April 2009, Modern Healthcare and The Commonwealth Fund, April 2009.