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Economic Incentives Motivate: What We Can Learn From The Rand Health Insurance Experiment

The use of economic incentives to motivate behavior is neither a Democratic or Republican idea. It is human nature to be motivated by economic incentives. The concept of individual responsibility is an American idea. It has been tarnished in recent years.

There is no question in my mind that government has the responsibility to be compassionate and help the needy. It is my view that government should help individuals help themselves.

The costs associated with Medicare and traditional healthcare insurance are rising. Every stakeholder points a finger at the other stakeholders as the cause.

President Obama’s Healthcare Reform Act is raising costs higher in anticipation of cuts in the future. He is in the process of forcing individuals to be more dependent on the government rather than promoting individual responsibility.

Obamacare will fail to control costs.

All anyone has to do is look at a Rand Corp. study of 29 years ago to see what works and what doesn’t work. After all that is said what matters are results in decreasing costs, not your political ideology.

The Rand Corp’s political leanings are more left of center than right of center. The Rand Corp tries not to be biased by these leanings in its scientific studies. Its conclusions from its own data are sometimes skewed to the left ignoring its own evidence.

The Rand Health Insurance Experiment looked at consumers’ healthcare consumption in healthcare plans with different deductibles as well as an HMO. It monitored the results and reported its findings in 1982.

The findings were:

  1. Patients are responsive to out-of-pocket costs (the more they have to pay, the less health care they buy).
  2. Changes in the amount of spending have no apparent impact on health care outcomes in most cases.
  3. Judging from the difference in behavior between HMO doctors and fee-for-service doctors, physicians are also very responsive to economic incentives.
  4. Consumers with high deductibles were as likely to cut back on useful health services, as they were to cut back on unnecessary care.
  5. The critics of the consumer driven model have used this last point as proof that consumer driven healthcare doesn’t work. They claim that these consumers will not get appropriate care if they have a high deductible and try to save money.

If health care was free, spending soared with no improvement in health status. In the government controlled model government has to limit individual choice of care and access to care in order to keep consumption of care down.

The 1982 RAND study proved to me that consumer driven healthcare can work. Healthcare consumption is driven by the economic incentives the healthcare system offers consumers, physicians, hospital systems, pharmaceutical companies and healthcare insurers. Consumer driven healthcare patients used services they felt were essential to them and did not spend money on services they felt were not essential.

A consumer driven healthcare system would stimulate the growth of full-service diabetes centers that would force physicians into competing for diabetic patients because patients would be managing their own healthcare dollars. CDHC could energize the chronic disease healthcare market. It would create specialized centers competing for the care of patients with chronic diseases. Preventing the complications of chronic disease with education about self-management is in the interest of patients with the disease as well as society. The medical care of the complications of chronic diseases consume 80% of all healthcare dollars. Consumers and physicians respond to economic incentives. The healthcare social contract is really between consumers and physicians not government and hospital systems.

A 2011 Rand study of more than 800,000 families from across the United States found when people shifted into health insurance plans with high deductibles their healthcare spending dropped an average of 14 percent compared to families in health plans with lower deductibles.

In October 2010 Cigna released a report covering 5 years of real-world experience with 897,000 plan members, about half in “traditional” coverage plan and the rest in consumer-driven plans.

All of the results show that CDHPs are working beyond anyone’s expectations.

  1. CDHPs save 15 percent in the first year, 18 percent in year two, 21 percent in year three, 24 percent in year four, and 26 percent in year five.
  2. All this while individual out-of-pocket exposure is about the same (17 percent) in both types of plans.
  3. Using Cigna’s quality measurements (which are wrong), there is 8 percent to 10 percent higher use of preventive services in the CDHPs.
  4. CDHP enrollees are 9 percent more likely to get evidence-based treatment in the first year and 14 percent more likely in the second year of enrollment.
  5. CDHP enrollees are five times more likely to complete a health risk assessment.
  6. CDHP enrollees are19 percent more likely to work with a health advocate.
  7. CDHP enrollees are 40 percent more likely to use on-line cost and quality tools when making decisions.
  8. CDHP enrollees have a 13 percent decrease in the use of emergency rooms.
  9. CDHP enrollees are 9 percent more likely to switch to generic drugs.
  10. CDHP enrollees have a 14 percent lower prescription costs.
  11. CDHP enrollees are 21 percent more likely to participate in a disease management program.
  12. CDHP reduce their costs by 21 percent for joint disease, 8 percent for diabetes, and 7 percent for hypertension.
  13. CDHP enrollees are slightly more satisfied with their plans than people in traditional approaches (83 percent versus 82 percent).

Finally according to the Employee Benefit Research Institute(EBRI), 22 million people are enrolled in consumer-driven and high-deductible health plans.

In 2010 EBRI conducted “Consumer Engagement in Health Care Survey” (CEHCS) analyzing the behavior and attitudes of 4,509 adults ages 21–64 with private health insurance coverage.

The findings were;

  1. People who enroll in these plans are more cost-conscious than those who have traditional health insurance policies.
  2. 53 percent routinely check to see whether their plan would cover specific care, compared with 47 percent of traditional policyholders.
  3. More than 50 percent check if a generic drug is available, compared with 44 percent in traditional plans.
  4. CDHP enrollees were more likely than traditional plan enrollees to choose doctors based on their use of health information technology.
  5. CDHPs enrollees also were more likely to exercise and less likely to be obese compared with traditional health plan enrollees.

President Obama’s Healthcare Reform Act will eliminate consumer driven health care plans.  I believe this is ill advised. CDHPs have decreased the cost of healthcare by motivating consumers to drive their healthcare decisions. A government directed system will not achieve this goal.

The results above were gotten with Health Savings Accounts. The use of my Ideal Medical Savings Account increases the economic incentives for consumers.

*This blog post was originally published at Repairing the Healthcare System*


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Richmond, VA – In an effort to simplify inpatient medical billing, one area hospitalist group has determined that “altered mental status” (ICD-9 780.97) is the most efficient code for use in any patient work up.

“When you enter a hospital, you’re bound to have some kind of mental status change,” said Dr. Fishbinder, co-partner of Area Hospitalists, PLLC. “Whether it’s confusion about where your room is located in relationship to the visitor’s parking structure, frustration with being woken up every hour or two to check your vital signs, or just plain old fatigue from being sick, you are not thinking as clearly as before you were admitted. And that’s all the justification we need to order anything from drug and toxin screens, to blood cultures, brain MRIs, tagged red blood cell nuclear scans, or cardiac Holter monitoring. There really is no limit to what we can pursue with our tests.”

Common causes of mental status changes in the elderly include medicine-induced cognitive side effects, disorientation due to disruption in daily routines, age-related memory impairment, and urinary tract infections.

“The urinalysis is not a very exciting medical test,” stated Dr. Fishbinder. “It doesn’t matter that it’s cheap, fast, and most likely to provide an explanation for strange behavior in hospitalized patients. It’s really not as elegant as the testing involved in a chronic anemia or metabolic encephalopathy work up. I keep it in my back pocket in case all other tests are negative, including brain MRIs and PET scans.”

Nursing staff at Richmond Medical Hospital report that efforts to inform hospitalists about foul smelling urine have generally fallen on deaf ears. “I have tried to tell the hospitalists about cloudy or bloody urine that I see in patients who are undergoing extensive work ups for mental status changes,” reports nurse Sandy Anderson. “But they insist that ‘all urine smells bad’ and it’s really more of a red herring.”

Another nurse reports that delay in diagnosing urinary tract infections (while patients are scheduled for brain MRIs, nuclear scans, and biopsies) can lead to worsening symptoms which accelerate and expand testing. “Some of my patients are transferred to the ICU during the altered mental status work up,” states nurse Anita Misra. “The doctors seem to be very excited about the additional technology available to them in the intensive care setting. Between the central line placement, arterial blood gasses, and vast array of IV fluid and medication options, urosepsis is really an excellent entré into a whole new level of care.”

“As far as medicine-induced mental status changes are concerned,” added Dr. Fishbinder, “We’ve never seen a single case in the past 10 years. Today’s patients are incredibly resilient and can tolerate mixes of opioids, anti-depressants, anti-histamines, and benzodiazepines without any difficulty. We know this because most patients have been prescribed these cocktails and have been taking them for years.”

Patient family members have expressed gratitude for Dr. Fishbinder’s diagnostic process, and report that they are very pleased that he is doing everything in his power to “get to the bottom” of why their loved one isn’t as sharp as they used to be.

“I thought my mom was acting strange ever since she started taking stronger pain medicine for her arthritis,” says Nelly Hurtong, the daughter of one of Dr. Fishbinder’s inpatients. “But now I see that there are deeper reasons for her ‘altered mental status’ thanks to the brain MRI that showed some mild generalized atrophy.”

Hospital administrators praise Dr. Fishbinder as one of their top physicians. “He will do whatever it takes to figure out the true cause of patients’ cognitive impairments.” Says CEO, Daniel Griffiths. “And not only is that good medicine, it is great for our Press Ganey scores and our bottom line.”

As for the nursing staff, Griffiths offered a less glowing review. “It’s unfortunate that our nurses seem preoccupied with urine testing and medication reconciliation. I think it might be time for us to mandate further training to help them appreciate more of the medical nuances inherent in quality patient care.”

Dr. Fishbinder is in the process of creating a half-day seminar on ‘altered mental status in the inpatient setting,’ offering CME credits to physicians who enroll. Richmond Medical Hospital intends to sponsor Dr. Fishbinder’s course, and franchise it to other hospitals in the state, and ultimately nationally.

***

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