The rehabilitation marketplace: Economics, values, and proposals for reform

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SPECIAL COMMUNICATION

The Rehabilitation Marketplace: Economics, Values, and Proposals for Reform John D. Banja, PhD, Gerben DeJong, PhD

ABSTRACT. Banja JD, DeJong G. The rehabilitation marketplace: economics, values, and proposals for reform. Arch Phys Med Rehabil2000;8 1:233-240.

This article examines whether the ideals, goals, and values of medical rehabilitation can be realized in a market-based health care system. The article observes that rehabilitation is greatly disadvantaged in today’s health care marketplace, which vio- lates virtually all the assumptions of a perfectly competitive one. Nevertheless, the authors argue that rehabilitation goals and market economics are not inherently incompatible and call for several market reforms that are congruent with both rehabilitation goals and market theory. These reforms will clarify and facilitate providers’ fiduciary responsibilities to patients as well as their accountability to payers. The authors conclude that while the marketplace is an inevitable medium for realizing rehabilitation goals, the vision and value of rehabilitation will not derive from the internal workings of the marketplace but ultimately from committed individuals and socially responsible institutions outside the marketplace.

Key Words: Disability; Economics; Markets; Ethics; Man- aged care; Rehabilitation.

0 2000 by the American Congress of Rehabilitation Medi- cine and the American Academy of Physical Medicine and Rehabilitation

A PLAUSIBLE INTERPRETATION of the last 20 years of managed care in the United States is to understand it as an

economic tug-of-war wherein the payer/financing side of health care has steadily overcome the provider/supply side as the driving marketplace force. 1.2 Despite this power shift, it nevertheless seems fair to say that both the payer and provider sides of managed care have consistently evolved practices inspired by entrepreneurially driven, wealth-maximizing corpora- tions.3.4 Although these practices may have delighted Wall Street during the early 1990s and persuaded one commentator to note that “a market culture and market idiom are becoming pervasive, even among the not-for-profits,“5 many of those practices have also generated enormous worry as to whether a robust marketplace culture can adequately accommodate the ethical ideals of patient-centered care.6-10

This article assumes that enough historical and organiza-

From the Department ‘of Rehabilitation Medicine. Center for Rehabilitation Medicine, Atlanta. GA (Dr. Banja). and the National Rehabilitation Hospital Research Center, Washington. DC (Dr. DeJong).

Submitted for publication September 17. 1998. Accepted in revised form June 19. 1999.

Supported by grant awards from the National Institute On Disability and Rehabilita- tion Research in the forms of a Maw Switzer Distinrmished FellowshiD to Dr. Baoia and a Research and Training Center on Managed C& and Disabilities io Dr. DeJone.

No commercial party having a direct financial interest in the results of the research supporting this article has or will confer a benefit upon the authors or upon any organization with which the authors are associated.

Reprint requests lo John D. Banja, PhD, Associate Professor, Department of Rehabilitation Medicine, Center for Rehabilitation Medicine, 1441 Clifton Road NE, Atlanta, GA 30322.

0 2000 by the American Congress of Rehabilitation Medicine and dte American Academy of Physical Medicine and Rehabilitation

0003-9993/00/8 102-52 16S3.0010

tional development has occurred so that certain features of health care marketplaces can be reliably evaluated. This article discusses the moral prospects for rehabilitation’s ability to operate according to competitive, marketplace principles and still be able to treat its consumers justly and according to certain moral beliefs that are historically embedded in rehabilitation’s (and, more generally, medicine’s) self-understanding. Begin- ning with a quasi-historical analysis of the flaws of the supply side, this article examines how certain fundamental features of the neoclassical marketplace have not been realized in the delivery of health care in general and rehabilitation in particular. We single out several features of today’s health care marketplace that are highly problematic for persons with disability and rehabilitation providers. We conclude with sugges- tions as to how a “socially responsible” system of rehabilitation services might evolve within a market-based system that lacks universal health care coverage.

HISTORICAL SKETCH Whereas the last 50 years of health care in the United States

have seen extraordinary technologic development, lengthening of the human life span, an exponential increase in comprehend- ing disease processes, and an emerging sensibility and interest in wellness and prevention strategies, it has also witnessed the growth of a health care industry that has failed, on numerous counts, to achieve “social responsibility.“” This observation may seem inordinately harsh given the beneficent, patient- centered ethos that has historically pervaded the provider- patient relationship. But therein lies the point. The manner by which that relationship was allowed to evolve apart from fiscal controls that would balance the exercise of professional au- tonomy with socially responsible pricing made for a system that could not economically endure indefinitely.

Most of this era saw virtually no serious interest in outcomes research whereby an intervention’s associated costs, benefits, and risks attached to interventions could be scientifically determined and whereby efficiency measures, which are. essential to any economically sound enterprise o rating in a competitive marketplace, could be practiced.lz-’ ge This era was sustained by a fee-for-service payment system under employer- sponsored health plans that were increasingly asked to bear the brunt of skyrocketing costs and greater percentages of unreimbursed costs incurred by uninsured and underinsured group~.‘~-‘~ The fee-for-service payment system and the lack of universal coverage led to enormous fragmentation, high administrative costs, and, embarrassingly, morbidity and mortality measures that compared poorly with other industrially advanced countries.‘s As Alain Enthoven, who is recognized for his influential theory of managed competition, observed in 1989, “It would be, quite frankly, ridiculous . . . to suggest that we have achieved a satisfacto

7 be wise to emulate.“’ system that our European friends would

In 1993, Cope and O’Lea?O reflected upon the ways supply side economics introduced a host of inefficiencies in rehabilitation, despite its frequent demonstration of lowering the m nomic burdens of disability. Of ironic but fundamental signifi- cance was rehabilitation’s expansion resulting from its exemption

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234 THE REHABILITATION MARKETPLACE, Banja

from the diagnosis related group (DRG) method of payment under Medicare.” Because rehabilitation services were not capitated as were acute care services reimbursed through DRGs, hospitals rushed to take financial advantage by developing or expanding their rehabilitation units. Whereas it remains a matter of debate whether this expansion was simply an instance of financial opportunism or a serendipitous correction in a service delivery system that had remained historically underde- veloped in relation to need, one item became clear: the growing numbers of rehabilitation programs would generate increased rehabilitation costs.

By today’s managed-care standards, many of the charges associated with these costs would be denied. Apart from reports of unethical marketing and billing practices that scandalized certain sectors of the brain injury rehabilitation industry in the late 1980~,‘*.*~ many of rehabilitation’s costs resulted from a system that was fraught with operational inefficiencies. Cope and O’Lear*O noted how certain rehabilitation providers in the 1980s shuffled patients back and forth through various layers of emergency care, trauma centers, and acute inpatient and postacute rehabilitation programs without much oversight from utilization or quality assurance review. Furthermore, because the outcomes movement and evidence-based guidelines had not gained the urgency or prominence they have today, utilization during that era and throughout most of the health care system often varied enormously.‘4-z7 Compounding the efficiency problem for rehabilitation is its complex goal of “functional recovery” rather than medicine’s more traditional goal of “cure.” Not surprisingly, significant differences of professional opinion could arise as to when a patient reached a “reasonable” or “acceptable” level of recovery. As long as patients had adequate, especially fee-for-service or cost-based, reimbursement, however, payment systems encouraged utilization and thus undermined the development of uniform and coherent “reasonable and necessary” care determinations.28

Acute rehabilitation has always been a relatively small economic blip on the radar screen of health care, and its practitioners doubtlessly look back on the halcyon years of the 1970s and 1980s with wistful nostalgia. Yet, that same era witnessed a period of hyperinflation in health care that terrified economists, who warned that if health care expenditures continued to grow at their 1960 to 1990 rate, they would account for 30% of the gross domestic product (GDP) by the year 2030.29 This means that the yearly cost of health care for each man, woman, and child in 2030 would require $12,000 in 1994 dollars. Inevitably, price reductions and demand filters had to be implemented as an increasing share of GDP was being “hijacked” by the health care industry. Managed care or something like it had to appear on the scene of American health care.3o

“SOLVING” THE ECONOMIC CRISIS OF HEALTH CARE

The seeds for the solution of the problem were sown during the Second World War, when the American work force and the federal government unwittingly ceded to employers an enormous degree of authority to control the benefits, flow, and economics of health care. The idea that employers in the United States could and should provide health benefits to their employees appealed to our nation’s sentiments about the superiority of the private over the public sector, while the tax exemption for health benefits encouraged by the National Labor Relations Board and approved by the Internal Revenue Service acceler- ated the practice of employer-based coverage.3t

The recent history of managed care recalls the adage, “He who pays the piper calls the tune.” As employers sought to

Arch Phys Med Rehabil Vol 81, February 2000

lower their spiraling health care costs in the 1980s. they realized that their historical role in paying the lion’s share of health benefits for their employees enabled them to control their costs by negotiating contractual terms that are so familiar today: price concessions from selected providers. aggressive case management, insurance lock-ins. benefits exclusions. increased co-pays and deductibles, and risk sharing.?

In tandem with these developments were unprecedented structural changes on the supply side, especially as for-protit providers sensed wealth-producing opportunities by acquiring and controlling market share through the development of large vertically or horizontally integrated provider networks.7Z To this day, industry consolidation is typically justitied because of its ability to produce new efficiencies and “synergies.” The new efficiencies were mainly cost-cutting steps that provided hand- some financial rewards and penalized inefficient providers with marketplace failure. During the first half of the 1990s. many for-profit providers achieved extraordinary tinancial success and became the darlings of Wall Street. Their success would argue for the fundamental rightness of the for-profit. competitive marketplace as the time-honored mechanism for righting all that was wrong with the health care system. This new-found faith in the competitive marketplace deserves special scrutiny. We shall now briefly examine the assumptions of an ideal, competitive marketplace and then illustrate the difficulties in realizing these assumptions in the delivery of health care and rehabilitation.

THE IDEAL, COMPETITIVE MARKETPLACE In neoclassical economic theory, the ideal marketplace is one

that meets all the assumptions or conditions of “perfect competition.” To the extent these conditions are reasonably attained, markets are said to be reasonably competitive and therefore efficient in allocating limited resources. But actual markets rarely, if ever, meet all these conditions, so that market failure is said to exist when one or more of the conditions of perfect competition remain substantially unattained. As many have noted, health care markets are notorious examples of market failure because they substantially fail to comply with any of the conditions needed for a competitive market. Perfectly competitive markets meet the following conditions3’J0:

I. Freedom of entry and exit. This assumption requires that all producers and consumers face no serious barriers to participating in the marketplace. They can enter and leave at will. Health care markets are typically not nearly so fuid because providers, in particular, must meet many entry conditions such as educational, licensing, and accreditation standards. Moreover, in today’s payer-driven health care system, providers may be locked out of the marketplace when they are unable to secure managed care contracts although most managed care plans have, in recent years, significantly opened up their provider panels.

2. Consumers and producers are price takers, not price makers. This condition simply means that an ideal marketplace witnesses a “dynamic equilibrium” between buyers and sellers wherein neither side takes unfair advantage of the other. Transactions, especially, do not witness artificially inflated prices because buyers and sellers “take” a price deriving from competitive practices operating according to rules of fairness. However, what is frequently seen in rehabilitation and other health care markets, particularly those in rural and other low density areas, is only one major provider or a limited range of providers that restrict consumer choice. Mergers and acquisi- tions among health plans or providers can further imbalance competition, occasionally requiring the intervention of the Federal Trade Commission or the Anti-trust Division of the

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Department of Justice to dilute the corrosive impact of monopo- listic practices.

3. Homogeneous product. This assumption means that all producers or sellers are providing a similar product, enabling consumers to make effective price and quality comparisons among the products offered. In health care, this condition is rarely attained. If they have a choice, consumers are usually presented with a confusing array of health plans among which it is extremely difficult to make meaningful comparisons. This state of affairs has led to the reconsideration of a standardized benefit package-or at least standardization within classes of health plans.

4. Petjh ir~fonnntion. This condition means that producers have perfect information about consumer preferences and, more importantly, that consumers have perfect information about the price and quality of their choices. The concept of an informed consumer is central to an effective market-based health care system and is also the basis for much of the health-plan report card movement. In today’s health care marketplace, the driving forces for additional and better quality information are the large employer-based purchasers who are demanding that health plans provide quality-related information. This phenomenon has led to the development of standardized quality indicator data sets such as the Health Plan Employer Data and Informa- tion Set (HEDIS), evolved under the auspices of the National Committee on Quality Assurance (NCQA), the nation’s leading accreditor of managed health care plans.

Despite these efforts, the problem of perfect information looms large in health care. Consumers rarely have good price and quality information on which to make health plan choices. Employer contributions, government subsidies, and tax exclusions often cloud price information, and quality information rarely goes beyond superficial “consumer satisfaction” data. At the provider level, economists often speak about the “asymmetry of information” between providers and consumers wherein the information and knowledge held by providers is far greater than that held by patients. Yet, an opposite asymmetry problem can occur as in the case of persons with disability who know more about their disabling condition than their providers or who are unable to find professionals who can meet their needs.

5. No exrernalities. This condition means that the costs and benefits of a good or service are fully reflected in its price and not “externalized” to parties outside the transaction. A classic example is when automobiles emit exhaust fumes. Here, the cost of the air pollution is not captured in the price of fuel but is instead shifted to parties external to the transaction in the form ill health and other costs. Presumably, consumers would purchase more fuel-efficient automobiles if they had to pay an up-front charge proportional to the pollution their vehicles discharge.

Health care, however, is replete with externalities. On the one hand, the cost of zero-price care for the uninsured is shifted to consumers, purchasers, and providers in the form of higher health plan premiums. On the other hand, health plans will deny payment and shift the cost of care back to providers and consumers. Indeed, the high transaction costs that are notorious in the American health care marketplace are frequently extemal- ized to the consumer or provider of service in the form of time-consuming paperwork and irritation.

THE RISK SELECTION PROBLEM Health care markets, unlike most other markets, suffer from a

major problem that deserves separate discussion from the above, namely, the propensity of health plans to enroll younger and healthier populations and avoid older and sicker populations-commonly known as the risk selection problem. Health

plans and capitated providers have an economic interest in avoiding consumers with above-average health care costs. The central problem, especially under capitated managed care, is the strong tendency of health plans and capitated providers to compete on the basis of price and risk, not on price and quality as in other markets.

In understanding how payers conceptualize and actuarialize their risk, one must realize that in any one slice of time, most individuals are not costly health care users and constitute, in economic terms, net assets rather than net costs. For example, in 1993, 19% of Medicare beneficiaries cost the system nothing, while another 53% cost the system $500 or less.bl In that same year, the most costly 10% of Medicare patients cost the program an average of $28,120 per insured while the other 90% cost an average of $ I ,340.39 For the population of health care consumers in general, “half of all expenses [are] incurred by 5% of the population and 70% of all expenses [are] incurred by 10% of the population” while “[flor all age groups, the sickest 1% of the population consume 28% of medical costs.“45 This leads to the following, key ethical observation: “To the health insurance entrepreneur, risk selection-avoiding the sickest-cuts far more costs than any conceivable administrative savings from better case management, bulk purchases, or second opin- ions.“J0

Among others, Kuttnefl has described how health-plan entrepreneurs, especially private carriers and Medicare HMOs, have resorted to several strategies to enroll low-risk subscribers. Thus, health plans sometimes exclude pharmaceutical reimbursement to discourage persons on drug regimens from enrolling. They design marketing brochures with pictures of (supposed) members vigorously exercising to discourage “couch potatoes” from enrolling. They target their marketing to community sectors wherein financially better off persons reside, or as a recent study found, hold “Medicare HMO marketing seminars. . . at sites that weren’t wheelchair accessible.“46And then there is the notorious anecdote about a Florida HMO that installed its clinic up a number of flights of stairs in the belief that potential enrollees who could negotiate the climb were probably good health care risks.40

Risk selection practices drive home the moral quandary of what Americans want their health care system to be: one that is poised to deliver goods and services to persons in their hour of need versus one that is poised to deliver the best return on investment and that boasts the lowest premiums derived from carefully enrolling only the healthiest persons. Donald Light”’ made the moral point with exquisite clarity when he observed that the evolution of the health insurance industry in the United States is best captured by the “inverse coverage law”: the more individuals need health care coverage, the less coverage they are likely to get or the more they are likely to pay for what they get.

Risk competition may be a valid form of competition in the auto insurance market, where risk-adjusted payments can be used to shape individual behavior. But many commentators have argued that such competition in health care environments results in an invidious form of discrimination against individuals such as consumers of rehabilitation services, many of whom have had no control over the circumstances that led to their disability.

MARKETPLACE ASSUMPTIONS APPLIED TO REHABILITATION CONSUMERS AND PROVIDERS At the risk of oversimplification, there are two types of

rehabilitation consumers. The first type are those who do non have a disabling condition and are only potential rehabilitation consumers. They constitute the larger of the two groups and ape

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least informed about disability and the need for rehabilitation. The second type are those who have a disabling condition and understand their need for rehabilitation services. Both groups, unfortunately, face significant barriers in making informed decisions.

Potential rehabilitation consumers may have little awareness about their risk for, or the nature of, serious illnesses or disabling conditions. To the extent that they deny or repudiate the idea that they might ever experience a serious disability, an indescribable shock awaits should the day ever arrive when they need extensive rehabilitation but cannot access services because of an inability to pay.32

These persons will ignore the need to make informed decisions about the kinds of health services or benefits that should be covered in a health plan in the event of a serious disability.38 Although some of them may have a decently accurate notion about the nature of, for example, spinal cord injury, they have never seriously considered what they would value by way of insurance coverage. Thus, they are thoroughly unprepared to answer questions about the relative values of a motorized wheelchair or a full complement of psychosocial interventions in the event of disability versus the cost savings that accrue from purchasing a cheaper plan without these benefits!’

Informed decision making within this group may also be impaired or obstructed by other decision makers. Persons with private health insurance, for example, will probably have received their insurance through their employers. But employ- era are not the employee-as-patient when he or she accesses health care services and, hence, can be poor proxies for calculating the needs and preferences of their employees. Furthermore, employers are always at least theoretically faced with a conflict of interest in purchasing health benefits for their employees because health benefits are a cost that, in more competitive markets, may require as much diminution as possible? Yet, the competition for human resources may require employers to offer an enriched benefit package as a form of in-kind, tax-exempt income that employees would not be able to obtain in the individual health insurance market. Conse- quently, the value that arises through the revealed preferences of primary health-plan purchasers (ie, employers) may not reflect the preferences of the actual end users of health care (ie, employees).31

Persons in the second group of consumers, ie, those already with a disability who need rehabilitation, face not only some of these same barriers but also additional ones. The moment an individual acquires a significant disability, he or she acquires the status of a high-risk consumer and faces all the problems associated with the adverse selection phenomenon cited earlier. Also, newly impaired individuals often have to make rapid decisions about the kinds of postacute care they need but find little information about their rehabilitation and other postacute options. Once they become rehabilitation consumers, they and their families face enormous transaction costs-precertifica- tions, utilization reviews, the filing and processing of claims, 6ling of appeals, and other frustrating, nonproductive, time- consuming activities that have propelled the United States far into the lead of industrially advanced nations as the one with the most administratively cumbersome and expensive health care system in the world.”

Moreover, expenses once borne by insurers are being increasingly shifted to patients and families. The degree to which such cost shifting has become standard operating procedure among certain firms was recently discussed by Linda Penno,5o who described her experience in evaluating a claim for a computer-

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ized voice synthesizer. The claimant was a young woman who had had a catastrophic brain stem stroke, resulting in loss of speech. It was unclear whether her plan covered a voice machine but by the time Penno-who was the Medical Director of the HMO and the ultimate authority on a questionable claim for benefits-received the claim, it had been examined by several members of her staff. She described their attempts, in the form of Post-it notes they attached to the claim form, to dissuade her from authorizing payment. One staffer speculated that the voice machine was experimental; another that it was excluded under durable medical equipment guidelines; another reminded Penno that authorizing expensive claims like this imperiled the jobs of the office staff. Another simply wrote, “Approve this, and it will be your last!” Penno summed up the mentality of the HMO by saying, “Though factors like budgets, networks, and contracts make critical differences, once a plan is up and running, the quickest way to a good bottom line is to limit and deny services . . . Money unspent is money saved . . . We are at war, and patients and doctors are the enemy.“50

Granted, Penno’s experience is anecdotal, but no reason exists to deny the plausibility that other similarly disposed HMOs engage in similar practices. The ethical challenge is one of implementing measures of justice and fairness that eliminate fraud and bad faith, that ensure that plan subscribers receive what they are owed, and that create a competitive environment whose demand and supply sides can be effectively disciplined by the purchasers of services.

At bottom, the policies by which financial incentives are currently designed by both the payer or supply sides frequently make individuals with chronic disease or disability persona non grutu. What primary care physician who is increasingly capitated and economically profiled will want to treat such patients, whose office visits last longer and who require more intense utilization? What managed care organization will want to enroll such individuals, whose care costs are predictably high? If rehabilitation is to survive in the contemporary marketplace, what measures should be in place to provide its consumers decent access to reasonably competent services?

PROPOSED REMEDIES No national remedy or proposal for achieving a just and fair

health care system has yet been adopted in the United States because fundamental ideological differences have long per- sisted over defining what is just and fair.51+52 Among economic conservatives, justice is a function of voluntary, contractual relationships, wherein value is determined by one’s engaging in marketplace transactions.40 An inevitable corollary of this position is that persons without financial resources will have little valuative influence in the political sphere and face poor prospects for acquiring it. Among political liberals, justice often involves issues of the common good that encourage the reallocation of wealth from the haves to the have-nots so as to insure social fairness, political parity, and a decent quality of life.“*”

A key ethical problem in formulating a “just” health care system is justifying policies that require private payers to extend their reach beyond their contractual obli foster policies aimed at the public K

ations so as to good?’ 6 Health care

providers can at least demonstrate a long history of social benefit through research, charity care, and public health programs. Moreover, when fee-for-service reimbursement predomi- nated, nearly everyone received health care who needed it and could get to a hospital or doctor’s office. The moral irony that made much of this possible, however, was private insurers’ being charged inflated rates that enabled providers to offset their bad debt from unreimbursed care-a policy that many

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contend was inherently unfair and inefflcient.s5 And yet, the contemporary distrust and animus so frequently vented towards profit-maximizing managed care organizations suggest that some of their operational practices violate a moral mandate of organizational responsibility and fairness that consumers had come to expect from health care providing organizations under the old regime.

Perhaps a remedy lies somewhere between the extremes of a (politically unrealistic) national health care system that provides decent care to everyone and a laissez-faire, profit-driven approach that seeks to enrich shareholders by refusing as much care as the law will allow and consumers will tolerate. How can the marketplace, operating in the absence of universal health care coverage, be disciplined to more nearly approximate the conditions of perfect competition and thus minimize its current shortcomings, especially those that adversely affect individuals with serious care needs and those who provide services to them?

The following four proposals address what we believe is the central problem of today’s health care marketplace: the increasing propensity of payers and providers to compete on price and risk rather than on price and quality. If markets did compete on price and quality, consumers would be able to evaluate price and quality trade-offs. Likewise, providers would be able to balance costs and outcomes that would enable them to realize their fiduciary responsibility to the patient and their fiscal accountability to the payer in a morally coherent way. Our four proposals are inspired by certain moral assumptions that are common in discussions about a “just” health care system while leaving in place certain popular and much heralded benefits that derive from marketplace competition.

The first proposal is to create standardized health-plan benejit packages and standardized contract language. We do not envision a single, one-size-fits-all benefit package but a modest number of standardized packages with somewhat different mixes of services, deductibles, and copayment policies. This would enable consumers to choose a type of plan that addresses their needs and preferred level of financial risk and that also enables them to make more informed price-and-quality comparisons among plans. This proposal recalls the standardization seen in the private Medicare supplemental insurance market (ie, Medigap), which offers 10 standardized, A through J plans that enable seniors to understand price differences among an otherwise confusing and bewildering array of choices.s7

We also propose that health plans adopt a standard definition of “medical necessity”-a sometimes maddeningly elusive term that has been manipulated by payers and consumers alike to demand or deny coverage.58 The term has proven especially problematic for rehabilitation providers who are in the business of enhancing and maintaining patient function rather than curing illnesses. By using standardized contract language across types of health plans, consumers will not have to worry about what, for example, a rehabilitation benefit means or does not mean.

Standardized contract language should also simplify benefits and claims administration. It may very well reduce litigation because legal precedents developing around commonly used terms will create greater certainty and facilitate arbitration when arbitration becomes necessary.

Most important, standardized contract language should reduce, although probably not eliminate, the risk selection competition that results from health plans tweaking their benefit pa&ages to appeal to specific pop&ion groups. It will greatly simplify benefit and claims administration across providers and payers and more quickly lead to industry-wide standardization.

It will reduce disputes among plans, providers, and consumers and shorten the frustrating learning curve that all parties confront in becoming accustomed to a new health plan and its claims and payment procedures. As in other industrially advanced Western countries, benefits standardization should simplify health information systems and lead to dramatically reduced transaction costs.

Finally, we suspect, but cannot prove, that benefit and contract standardization may foster greater uniformity in treatment protocols as it provides a more objective basis for payers and professionals to comprehend the meaning of “reasonable and necessary” care.

Our second proposal is to risk-adjust health plan payment and, if necessary, curve out specific populations that may not be adequately protected using population-wide, risk adjustment methods. This proposal would address the risk selection problem head-on and encourage health plans to enroll subscribers who constitute a more representative cross-section of illness, disease, and disability in the health plan’s market area.59 Again, Medicare offers a good model for our recommendation in that Medicare at-risk plans have (notoriously) been known to enroll individuals who are healthier than average Medicare beneficiaries.“) Because these plans receive payments based on the expenditures incurred by “average” Medicare fee-for-service beneficiaries who account for more health care expenditures, Medicare HMOs are “overpaid” between 10% to 15%-even when reimbursed at 95% of the amount incurred by the Medicare fee-for-service beneficiary.6’.62 Under the Balanced Budget Act of 1997, Congress instructed the Health Care Financing Administration (HCFA) to adjust its payment formula for the overpayment. Starting in January 2000, HCFA will replace the highly problematic adjusted average per capital cost (AAPCC) formula now used in the Medicare program to set payment for at-risk health plans with a new risk adjustment formula that explains more of the variation in health care utilization. Implementation of risk adjusters might make HC- FA’s payment for healthy, “excellent risk” plan subscribers so low that, according to one commentator, “HMOs that have succeeded based on positive selection may find it difficult to continue to make a profit.“62

The spirit of our proposal is in keeping with the Health Insurance Portability and Accountability Act (HIPAA) of 1996, as well as those market reforms in dozens of states that have sought to apply community ratings, increase coverage portability, maintain high-risk pools, and limit pre-existing conditions to improve access.63*64 The point of this proposal for rehabilitation is obvious: persons with chronic disease or disability constitute an especially vulnerable group whose access to health services can be handicapped from the start. Risk adjustment would encourage health plans to contract with rehabilitation providers knowing that they have subscribers who will require rehabilitation services. Simultaneously, this proposal would establish a more level playing field among plans when their various measures of quality are compared across health plans and providers.62

Our third proposal is to require thut health plans und providers reasonably disclose stnndanlited risk- or severity- adjusted quality indicators of access, outcomes, consumer satisfaction, and disenrollment rates. Such information must be available in readily accessible formats that will enable both purchasers and consumers to compare the performance of b&i health plans and providers. This proposal addresses the “perfect” information condition of perfect competition and is essential to creating a marketplace that competes on p&e 4 quality, not price and risk.


Risk and severity adjustment has as significant an impact on quality indicators as on health plan and provider payment. Without severity adjustment, one cannot effectively compare the quality of one health plan or provider with another because one plan might have enrolled healthier subscribers and thus (unfairly) boast superior quality indices than the other. Note also that risk adjustors for payment may not make good severity adjusters for quality indicators or outcomes. Some of the adjusters, eg, age and diagnostic group, may be the same or similar but their coefficients or weights will be different because they are seeking to explain different dependent variables.

Major strides are being made toward the implementation of this recommendation, but a long road lies ahead before comparative information about quality becomes routinely available in all major health care markets. Leading the demand for better quality-related information are the large employers and purchasing associations who want to know which health plans they should sponsor. Large purchasers have the market clout to make information demands on health plans and providers that consumers cannot make individually. Helping to import some standardization to the reporting of quality indicators is the National Committee on Quality Assurance, which acts on behalf of large purchasers in accrediting managed care plans. NCQA has created the Health Plan Employer Data and Informa- tion Set (HEDIS), a set of process, outcome, and satisfaction measures used across health platt~.~~~~ NCQA maintains a database (at www.ncqa.org) that, in addition to informing browsers about a plan’s accreditation status, expects in 1999 to add consumer satisfaction reports on speed of care, communica- tions with doctors, ease of finding a doctor or nurse, claims processing, and overall experience with the planti

Concurrent with NCQA’s efforts is the Consumer Assess- ment of Health Plans Study (CAHPS) sponsored by the Agency for Health Care Policy and Research and conducted by the RAND Co

‘% oration, Research Triangle Institute, and Harvard

University. ’ This multiyear project seeks to find ways in which health plan quality information can be packaged and made user friendly for the average consumer. HCFA will be looking to NCQA and CAHPS in its own efforts to make comparative health plan information about quality available to Medicare beneficiaries in selected markets and eventually in all markets across the nation. Presently, HCFA now maintains an interac- tive Web site (www.medicare.gov/managedcare.html#/compare) that allows browsers to compare all the plans in their geo- graphic area in terms of costs, premiums and types of services provided. Given Medicare’s strong role in today’s health care marketplace, its requirements may set the standard as to how other sponsors and payers in the marketplace respond.68*@

Unlike numerous health care providers, rehabilitation providers already have many of the tools needed for outcome disclosure, such as standardized functional status measures and large data bases to which providers report their functional status and outcome data. Nonetheless, the rehabilitation industry will have to take a number of difficult steps in meeting the requirements of this proposal. First, the industry needs to develop severity adjusters for its outcomes just as it has developed risk adjusters for payment in the form of function related groups (pRGs).69 Second, the industry needs to develop additional rules for disclosure so as to create a level playing field for all providers and to prevent selective disclosures that unfairly put a provider in a positive light relative to its competitors. Data quality checks would also need to be developed to discourage gaming and other forms of unjustified data manipulation. The development of such rules will require considerable collaboration among industry trade associations.

Arch Pbys Mod Rehabll Vol 81, February 2000

professional associations, data houses, research centers, and CARF along with the concurrence of nonrehabilitation organizations such as HCFA, NCQA, Joint Commission on Accredita- tion of Health Care Organizations (JCAHO), and others. The industry will also have to develop an educational strategy to inform consumers, payers, purchasers, and referral sources about what these quality indicators and scores mean.69*70

Our fourth proposal is to require that health plans disclose to their sponsors, their members, and potential members the contractual andfinancial arrangements they have with provid- [email protected]+71 If the marketplace principle of “consumer sover- eignty” is to occur in health care, then consumers will want to know what financial incentives are given to providers (eg, by bonuses or withholds) in order to evaluate the extent to which providers are tempted to place their economic interests over their patients’ welfare. Although “gag” clauses that forbade physicians from discussing items that might alert a patient to his or her plan’s inadequacies or limitations are virtually nonexist- ent today, recent reports attest to health plans that reveal their formularies only to doctors and pharmacies, not to members or prospective members. 72 Some plans refuse to disclose their guidelines for determining “medical necessity” (G. Wolfe, personal communication, March 25, 1998). while Atlanta physicians working in the Promina system must sign a confiden- tiality agreement in order to read their contracts, especially as those contracts stipulate the particulars of their reimbursement.73

Concealing information is an odd development in the emerging marketplace environment that justifies its superiority over other reimbursement models on the basis that consumers can shop among plans and choose the one best suited for them. Although plans attempt to justify their concealment practices as necessary to protect confidential working documents or pat- ented data storage and retrieval systems, policies that systemati- cally conceal information that consumers need to make informed purchases contradict fundamental marketplace principles and encourage regulation that requires disclosure.”

ROLE OF GOVERNMENT We believe that our four proposals can serve as building

blocks for a market-based health care system that can more adequately meet the needs of individuals with disabilities and create a more level playing field for rehabilitation providers. Our proposals are not the only features that must be in place if health care markets are to work efficiently, although they seem critically important from the standpoint of consumers with disabilities and the providers who serve them. Indeed, most of our proposals are not new and many of them can be found with varying degrees of development in many health care reform proposals, such as those debated at the height of the health care reform debate in the 103rd Congress (1993-94).

Most recommendations, regardless of whether they are for or against market-based health care reform, meet resistance on the ideological issue of government’s role in facilitating conditions for effective and efficient health care markets. Marketplace enthusiasts view government as a drag on efficiency through the imposition of costly compliance measures insisted upon by some parochial, self-interested group. Others see government as an enabler of market efficiency by creating and enforcing rules that will enable markets to more nearly approximate the conditions needed for effective competition.39s40*64

Despite these controversies, all markets need rules and referees-to work effectively and efficiently. These rules must be created either internally by buyers and sellers or externally by government or other public authority. People often mistak- enly speak of “free” markets although markets cannot work

THE REHABILITATION MARKETPLACE, Banja 239

efficiently without agreed-upon rules. In this regard, DeJong and Sutton69 have suggested that cues might be taken from our equities and securities markets, and especially the Securities and Exchange Commission (SEC) that was established in the aftermath of the 1929 stock market crash to create and govern fair trading practices in the stock and bond markets. Without the benefit of SEC rules, trading was chaotic, rife with insider trading, and lacked the level playing field that encouraged others to participate. Similarly, Lynn Etheredge has proposed a “National Health Care Market Commission” that would serve as a regulatory agency structured like the SEC. Just as the SEC’s primary role is to ensure adequate and accurate disclosure of substantive information to investors, the commission that Etheredge envisions would have as it principal objectives “to inform consumers and to foster competition based on quality, cost and service. It would establish registration requirements for health plans to ensure that they meet national standards for information disclosure and for fair dealing with consumers.“74

Although well intentioned, much government policy in health care has often witnessed unforeseen consequences that greatly add to transaction costs.39 The varying success of previous government policies should not, however, blind us to the need for government or other parties as important rule makers and referees. We believe that a shift led by government and large purchasers to a more consumer-oriented health care marketplace that values information disclosure will help create the conditions needed for a health care system that is more responsive to the needs of individuals with disabilities and rehabilitation providers.

CONCLUSION In implementing these proposals, Americans will need to

transition from an historically conditioned expectation that the very best of health care services be available at a whim and are paid for by someone else, to accepting a more “cornmodified” notion of health care that understands its reimbursement as a function of the coverage outlined in the plan. If the mentality and dispositions of a marketplace culture persist in health care, Americans will increasingly realize that they cannot expect comprehensive benefits, superior quality, and unrestricted choice of their health providers to be available on the cheap. For the health care marketplace to work, its purchasers must be enlightened about what their money can buy so that they and their suppliers can impose reasonable expectations on one another and be held to a reasonable modicum of accountability.

Although our recommendations may seem daunting, rehabilitationists should nevertheless take heart in the fact that no health care system, whether it be market-driven or otherwise, can call itself socially responsible if it dismisses functional restoration from its aspirations to quality and social obligation. Indeed, rehabilitationists must remind themselves of the ideological link between functional ability and America’s cherished goal of self-realization for its citizens.75.76 In a land whose culture revels in persons realizing their identities, goals, and aspirations and which espouses political freedoms precisely so that persons can be or develop into the selves they desire, the value of rehabilitation’s restoring citizens’ functional abilities is unimpeachable. To dismiss rehabilitation’s worth is to dismiss the preeminent medical expression of America’s political ideals.

Nevertheless, all who have a stake in the future of American health care must be reminded that the marketplace does not presuppose value but only provides the means for its expression. While the great merit of the marketplace consists in its plasticity and responsiveness to its users’ preferences and

desires, its own laissez-faire construction causes it to be largely without ideological or philosophical presuppositions.40

Consequently, pronouncements and arguments about the value of rehabilitation-or the value of any social good for that matter+an only come from outside the marketplace: from voters, government, employers, and health care consumers, all of whom need to develop deep insight as to how life can be compromised by the onset of serious disease or disability. Given these influences, the marketplace should respond accord- ingly. But to depend on the internal workings of the marketplace to provide us with a vision of the public good and then deliver that good to us is but a fantasy. Socially responsible institutions only result from the efforts of persons with virtuous intentions, reliable networks of support and persuasion, pro- found knowledge, and unflagging commitment.

Acknowledgment: Dr. Banja is indebted to his colleagues at Emory University who participated in the Sawyer-Mellon faculty seminar on the role of marketplaces in health care.

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The rehabilitation marketplace: Economics, values, and proposals for reform

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