Managed Care - April 2008 - (Page 51) example, would help the purchase of future maintenance or preventive care options. Here is how this would be implemented in practice. First, I discuss the mechanics of an individual option sold by a single organization. Second, I discuss how multiple options within a single organization could be bundled for simplicity at the point of sale. Third, I discuss how different bundles would form networks between different health organizations. Finally, I discuss how this scheme addresses current problems in the U.S. health care system. filling the prescription would exercise the contract at the pharmacy, paying the guaranteed price, ideally lower than the current price. SINGLE MEDICAL OPTION A health organization may write a contract that guarantees the buyer a price on a medical product or service for a period of time. The premium price of the contract reflects the organization’s desired return on the sale and the underlying cost of providing the service. As with other option contracts, the price of the option is determined by the guaranteed price of the service, the length of time until expiration, the current underlying asset’s price, and the risk-free interest rate. Therefore, the organization could set the option price at a present value anticipating the material, facility, and labor costs over the life of the option contract. An increase in the utilization of a product or service would increase the value of the contract to its owner. The owner will want to sell the option if he no longer needs the underlying medical product or service. Likewise, less need or demand for a given product or service would reduce the intrinsic value of the option. For example, before developing an acute illness, patients could purchase an option contract on an antibiotic to guarantee a future price on the medication. Suppose that during flu season, the price of filling the medication increases because of increased demand at the pharmacy. A patient BUNDLES OF MEDICAL OPTIONS An organization might bundle a set of options to provide to its members as a package. It might be clinically relevant to provide more than one product or service to a patient, given the nature of needed care. Therefore, the price of this package would reflect the prices of the component options and their underlying products and services. For example, pharmacies that can legally provide influenza vaccines could write a single option contract on the influenza vaccine and another option contract on an antibiotic. They could then bundle and sell them as a package. Another example would be to bundle a set of options on medications for metabolic syndrome. This bundle would be made up of an option on a lipid-lowering agent, a series of options on antihypertensive agents, and an option on a blood glucose lowering agent. This would be sold as a single package. For simplicity, the pharmacy might design the contract so that each agent or all agents would have a single exercise price. CREATING A SUPPLY CHAIN NETWORK The maximum benefit of the medical options scheme would occur if different organizations sold the option bundles to each other. This would create a supply chain network of option bundles for products and services that would ultimately reach a patient. As an example, consider a network of option bundles for hypertension management. A hospital would sell a single care package for emergent stroke treatment. This would include a series of options guaranteeing the price on medications for acute stroke, any sup- portive care products and services, and the cost of the hospital stay. The hospital would bundle a similar package for cardiovascular events. A pharmacy would bundle a series of options on a combination regimen for hypertension. Finally, a diagnostic laboratory would bundle a series of options on troponin and electrolyte blood tests. A primary care physician could purchase these option bundles from the hospital, diagnostic lab, and pharmacy on behalf of his patients. The provider would then sell a single package to his hypertensive patient. The physician could resell all the options of the underlying bundles or sell a portion, keeping ownership of the hospital options, to resell later if the patient’s risk of hospitalization is reduced. IMPACT ON PATIENT OUTCOMES AND CASH FLOW Considering the prior example, we can explore the potential impact on clinical outcomes and organizational cash flow. If the provider manages the patient well, the probability of exercising certain options is reduced. Therefore, the hospital profits by selling to providers who manage their patients well or who ensure better health outcomes. Lesser performing providers produce greater risk and therefore drive up the cost of the options. A hospital also profits if it perform with greater efficiency and lower cost. Hospitals could then compete based on ability to manage hospitalized patients with greater cost efficiency and better performance. The benefit of this model is that it insures against internal risk, not just market risk. Financial options work better when their price reflects market risk. However, medical options involve an additional risk — internal risk, which involves underlying decisions or management practices that are difficult to place a price on. For example, one cannot assess a priori a patient’s ability to be compliant with APRIL 2008 / MANAGED CARE 51
For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.