Winning the Hardware Software Game Winning the Hardware-Software Game - 2nd Edition

Using Game Theory to Optimize the Pace of New Technology Adoption
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A copy of the full analysis can be downloaded by clicking on the link at the bottom of this blog entry.

 

In Part 1 of this analysis, I described the main issues facing Doctors.

In Part 2 of the analysis, I described the main isssues facing Patients and Payers.

In this last part of the analysis, Part 3, I discuss the tensions (conflicts) between the different sets of players that are engendered by the different incentives each player faces.

Inter-Player Tensions

The optimization problems that Physicians, Patients, and Payers face end up creating various tensions (i.e., conflicts) between different sets of players. This section examines those tensions (illustrated in Figure 5) and the impact they might have on the outcome of the game.

Figure 5

 

Doctor – Patient Tensions

Decreasing reimbursements and increasing costs have forced physicians to increase their volumes of patient flows in order to maintain profitability. Greater patient flows mean there is less time now available per patient than there used to be.

As physicians have been able to spend less time with each patient, their ability to provide high quality (time-intensive) communications and individualized treatments has decreased. This leads to lower quality care and lower levels of patient adherence (via lower levels of concordance).

The constraints on physicians’ time becomes more problematic as patients’ problems become more complex. As technology has improved, physicians have been able to treat the less complex illnesses, thereby enabling patients to live to experience more complex diseases. More complex diseases generally require more physician time to address. But as patients require more and more of their physicians’ time due to increasing complexity of illnesses, physicians’ are less and less able to provide more time.

At the same time, the state of medical information has become tremendously more abundant and nuanced, as healthcare experts learn more about the intricacies of the human body (e.g., through genomics), thereby enabling more personalized patient treatments. In order to keep up with the latest discoveries, physicians are required to spend more time dedicated to learning about all the new findings. Again, this is yet another constraint placed on physicians’ already scarce time resources.

The increased complexities of patients’ conditions, together with the decreasing availability in physicians’ time per patient, almost assuredly cause many patients to spend more time in unhealthy and/or undiagnosed states that they would if physicians had more time to spend with each patient.

 

Doctor – Payer Tensions

The decreases over time in the reimbursements that insurance companies have been paying providers have recently been leading providers to consolidate into larger groups. Larger groups of doctors have much more leverage than do small independents and can thus negotiate higher reimbursements from insurance companies (see, for example, Donna Marbury, “Reimbursement, Operational Costs Threaten Independent Physicians to Sell Practices”).

Another physician-payer tension involves the transition from fee-for-service to pay-for-performance systems. This change in the nature of reimbursements is shifting risks associated with the costs of treating patients from insurance companies onto providers.

In theory, larger physician practices (first tension mentioned) and pay-for-performance systems (second tension mentioned) are supposed to increase the quality of care delivered by providers, by enhancing the coordination of care across providers (through co-location of physicians) and motivating physicians to provide more efficient care. However, the reality is not necessarily playing out as the theory had predicted. First, many physicians are consolidating into large, homogenous (same-specialty) practice groups, so as to increase leverage and economize on fixed costs. However, it is larger heterogeneous (diverse-specialty) groups that are expected to provide better quality of care. What this leads to is greater reimbursements for physicians (which will eventually be passed on to patients in the form of higher insurance prices) with no associated increase in quality of care for patients.

And second, the shift in payment risk may end up driving physicians out of practice, if physicians cannot achieve improvements in quality of care in a timely manner. Forcing physicians to change the way they practice is no trivial undertaking. It requires massive changes in workflows across many different participants in the healthcare system. If enough participants drop the ball, then pay-for-performance measures will lead to lower payments to physicians, perhaps forcing some physicians out of practice, and lower quality of care for patients.

 

Patient – Payer Tensions

There is an obvious tension between patients and payers over insurance costs. Payers would like to increase profits by setting premiums above those required to meet expected payouts. Patients, on the other hand, would clearly like to pay as little as possible for healthcare insurance. The ARRA/ACA imposed limits on provider profits attempt to address this issue in favor of patients.

As described in the section above on Payers, insurance premiums involve cross-subsidies from low-intensity healthcare users to high-intensity healthcare users. The ARRA/ACA impose additional subsidies into the system by forcing subsidies from wealthier people to poorer people.

To the extent, then, that there are many high-intensity and/or poor users of healthcare services relative to the numbers of low-intensity and/or wealthier users of healthcare services, the latter group will be disadvantaged by being forced to pay more for their healthcare insurance.

 

Doctor – Patient – Payer Tensions

Large differences in reimbursements for general healthcare services and specialty care services are causing a shortage of generalists relative to specialists (see, for example, “New Study Identifies Large Gaps in Lifetime Earnings of Specialist and Primary-Care Physicians”). This shortage of primary care physicians is becoming exacerbated as (i) the ARRA and ACA are pushing for increases in access to care for poor and previously uninsured people (who generally enter the system through primary care physicians); and (ii) insurance companies are trying to contain costs by directing patients to see generalists instead of specialists. Shortages of generalists decrease quality of care by impeding patients’ timely access to both generalists, and when referrals are needed, to specialists.

Another tension between physicians, patients, and payers involves whether or not physicians choose to join payers’ networks. A physician who joins a network will receive lower reimbursements for his services and be subject to greater administrative costs of caring for patients, but he will be appealing (cost-effective) to greater numbers of patients. With lower reimbursements, higher costs, and higher patient volumes, however, the time physicians are able to spend with each patient decreases, thereby decreasing quality of care.

At the same time, currently and historically, payers’ reimbursements to physicians have been determined by Medicare fee schedules and physicians’ negotiating leverage. Quality of care has not been a factor in determining reimbursements (though it may have an impact on patient volumes). As such, all else equal, doctors really have no incentive to invest in factors that will increase their quality of care, such as IT, resources, communications with patients, etc. What they do have an incentive to invest in, however, are factors that increase their efficiency (factors that enable them to increase their patient volumes) or quantity of treatments (tests or procedures) performed (that they can bill for).

Taken together, the two previous paragraphs imply the following. While enhanced doctor-patient communications may be an extremely effective means of improving patients’ quality of care, adherence, and health, all of the current incentives in the system lead physicians to do exactly the opposite: reduce time spent on communications with patients.

In a similar vein, the ARRA/ACA are requiring physicians to invest in EMRs and show meaningful use of these systems. These new regulations require physicians to invest tremendous amounts of time and money in greater amounts of IT, with the hope that it will increase the quality of care. However, with the even greater costs of providing healthcare services associated with investing in these new systems, combines with continued trends in decreasing reimbursements, unless physicians can recoup their costs of investments by achieving tremendously greater efficiency (which is the ultimate purpose of the regulations) or patient volumes, they will end up with lower incomes.

Physicians seeking less risk, lower costs, and greater reimbursements are consolidating from smaller private practice into larger affiliations. The ARRA/ACA requirements are speeding up the pace of this trend.

•  To the extent that physicians in larger practices experience less autonomy, physicians will suffer a decrease in welfare associated with the reconfiguration.

•  To the extent that the newly configured physicians are able to better coordinate their care, they will increase the quality of care they are able to provide patients.

•  To the extent that physicians in their new affiliations generate greater reimbursements for providing the same care, insurance companies and patients will suffer.

 

Other Tensions

Figure 6 provides a table listing the various factors in the healthcare system that affect doctors, patients, and payers, together with the direction of their impact on each player. Most of the factors were just discussed in the previous sections on tensions across players; the factors that escaped discussion above are included below.

Figure 6

 

IT

Theoretically, better IT systems, including electronic medical records (EMRs) enhance the quality of care provided to patients by increasing the efficiency of collecting, referencing, and distributing information.

Problem 1: IT systems are costly, so my forcing physicians to adopt EMRs the ARRA has increased physicians’ time and money costs of providing healthcare services.

Problem 2: Benefits from IT systems are enhanced, as greater numbers of providers are able to interconnect their IT systems and share information. However, in reality, the systems (currently) are not able to interconnect and share information. So the majority of benefits associated with adopting EMRs are not currently achievable.

Problem 3: The use of IT systems has ended up cutting into doctor-patient communications, as doctors spend what few minutes they have with patients typing data into systems, instead of facing and connecting with patients.

There are many more problems with IT, but those are the most relevant for the analysis at hand. (For a detailed analysis of the dynamics associated with the adoption of EMRs, see my previous analysis “Will Adoption of Electronic Medical Records Live up to the Promise?”)

Ultimately, many of the current problems with EMRs will (hopefully) be worked out. However, during the initial phases of adoption, almost all the various costs associated with adoption of the new systems are generally borne by physicians, while, to the extent that there are benefits, it is the patients (through easier access to patient information) and/or insurance companies (through greater efficiency in billing systems) who receive the benefits.

 

Regulations

Theoretically, regulations in the healthcare industry are established to increase the quality of care. In reality, the regulations have become so burdensome (see the discussion in the section on Doctors, subsection Increasing Regulations) as to make the costs of providing care almost completely untenable.

 

State of Medical Information

When doctors have more information, they are better able to treat patients. Doctors benefit from being more effective, patients benefit from receiving higher quality of care, and insurance companies benefit to the extent that more information enables physicians to provide more efficient and effective care.

 

Lifestyle

To the extent that patients who lead healthier lifestyles are healthier and need less insurance and fewer healthcare services, patients are better off but doctors and payers are worse off. To the extent that patients would rather lead unhealthier lifestyles, patients who do “succumb to” healthier lifestyles will be worse off.

 

Adherence

The impetus for my undertaking this analysis of the Doctor-Patient-Payer Game was to examine the impact of the transition from fee-for-service to pay-for-performance reimbursements on the outcomes of the game. In theory, it sounds great to say that doctors’ reimbursements should depend on patient outcomes. After all, shouldn’t doctors be held accountable for the quality of care they provide patients? Unfortunately, the reality is that patients’ outcomes are fundamentally determined by the behaviors of the patients themselves – in particular, whether or not they adhere to their doctors’ recommendations. Such behaviors are largely outside the control of doctors. What this means is that the new system will now be making payments to doctors largely based on things doctors cannot control.

Studies show there are a plethora of reasons to explain why patients do not adhere to their doctors’ recommendations. The reasons are complex, and they vary from patient to patient. However, what has been found to be a significant factor in having patients adhere to their doctors’ recommendations is the quality of the doctor-patient relationship, the extent to which patients trust their doctors and feel understood by them. This type of relationship takes ongoing nurturing and attention.

However, everything that’s been happening in the healthcare system has moved to destroy this relationship. Higher costs of providing services and lower reimbursements have forced physicians to increase their patient volumes and thus decrease the time they can spend with each patient. At the same time, required use of EMR systems is now forcing doctors to spend what time they do have with patients clicking through computer screens and typing in data. So instead of focusing on patients, looking them in the eye, watching for all their nonverbal signals, and really making the patients feel understood, doctors spend their time staring at computer screens, typing in data.

 

Health

To the extent that healthier patients need less insurance and fewer healthcare services, doctors and payers are worse off when patients are healthier.

 

Quality of Care

Patients and payers benefit when physicians provide greater quality (efficiency) of care. However, since physicians (currently) bear most of the costs associated with providing higher quality care, but fail to (currently) generate substantial benefits (reimbursements) from doing so, physicians may (currently) end up being worse off when they provide higher quality of care.

 

Cost of Insurance

When patients’ insurance costs are higher, patients suffer from the higher costs of receiving healthcare services, and physicians suffer from associated decreases in demand for healthcare services from patients who cannot afford higher prices.

To the extent that insurance costs are higher because insurance companies are generating higher profits, then insurance companies may be better off with higher costs of insurance.

To the extent, however, that insurance costs are higher because physicians are generating higher reimbursements, then physicians may be better of with higher costs of insurance while insurance companies are worse off.

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