Controlling health care costs: Germany edition

The McKinsey Quarterly recently interviewed Franz Knieps, director general for public health care, health insurance, and long-term care insurance in the German Federal Ministry of Health about his country's efforts to control health care costs. Knieps reveals that Germany is both looking to the U.S. as part of this effort and trying to introduce greater competition:

The Quarterly: How else are you using incentives to control costs?

Franz Knieps: A few years ago, we introduced disease-management programs, an approach we adopted from the United States. Because that country has so many different health insurance plans, it is often a laboratory for new ideas. Some US health insurers are using disease-management programs to improve the quality of care delivery while managing costs. We were impressed by the results these insurers were obtaining, and so we decided to implement similar programs in Germany.

We now have disease-management programs for patients with heart disease, diabetes, and some other common chronic conditions. The programs were designed using evidence-based guidelines, which ensures that the treatments included in the programs’ protocols are the most effective ones available.

To participate in the programs, patients must agree to get regular checkups from their doctors and to adhere to treatment recommendations. The doctors must agree to adhere to the programs’ protocols and to educate the patients about self-care. The programs give both patients and doctors an incentive to participate. For example, doctors are given additional money for each patient they enroll, and copayments are lower for enrolled patients. The health insurers benefit as well, because the programs are designed to prevent disease exacerbations, complications, and the high costs they entail. The insurers were also given additional funding from the federal risk-adjustment scheme to cover the programs’ initial costs.

Clear evidence is emerging that the programs have been very successful. Millions of patients have already enrolled; all of them have agreed to abide by the program’s protocols.

Yes, you read that correctly. Europeans are looking to learn more about effective treatment of their patients from evil U.S. health insurance companies. And then there's this:

The Quarterly: What other new ideas is Germany considering to further control health care costs?

Franz Knieps: I think there are no new, revolutionary ideas in health care policy, but there are some old ideas that are still worth thinking about. When I was a young man, I met Brian Abel-Smith, an influential health economist at the London School of Economics, and I asked him what the major idea in health care policy was. His reply, in essence, was this: “My dear young friend, the only way to organize and pay for health services well is to change the system every second year so that nobody feels comfortable in it.” He meant that every so often you have to rearrange the coalition of stakeholders within that system so that nobody feels complacent, nobody feels safe.

In Germany, we recently tried to accomplish this type of rearrangement by introducing greater competition into the system. Patients have been given much greater freedom to choose among the various statutory health insurance funds. They also have greater freedom to choose which services they want to have covered, which doctors they consult, and which hospitals they visit for treatment. As a result, the insurance funds, doctors, and hospitals must now compete for patients. The change has brought a lot of new ideas into the system, and it has increased the pressure on payors and providers to deliver high-quality services efficiently. We believe that the increased competition, in combination with our regulatory safeguards, could enable our health system to reinvent itself, if not year by year, then at least decade by decade.

Whether it makes sense to introduce this type of competition into other health systems, especially those that are centrally run, is not yet clear. It’s difficult to give advice to others, but I think that we should all be willing to learn from one another and adopt successful experiments. For example, a centrally run system could introduce competition gradually, perhaps first by bringing in private hospitals. If that went well, the next step might be to increase competition between public and private insurers. Changes can be made step by step, so that the health system can see whether they work or not.

Health care reform based on expanded competition would be a welcome development here in the U.S. too.