In two previous posts,
A Prescription For The Health Care Crisis and
Analysis Of The Health Care Law, I attempted to analyze the major cause of America's skyrocketing health care costs and why I was skeptical that the new health care law would do much to curtail it. In this post, I'd like to offer some concrete ideas about what I think needs to change to slow the rate of rise of our nation's health care bill. While I'm certainly no expert in health care policy or economics, I have had extensive experience as both a health care provider and administrator and would like to get a conversation going in this forum that address the most significant cause of our inflated costs. Though the ideas I suggest below have little empirical evidence behind them (at least in the context of health care) as studies haven't yet been done to prove their efficacy, they do leverage knowledge from outside the health care field, from the fields of psychology and to a more limited degree economics. However, whatever useful ideas might come out of this exercise, I would be the first to advocate that they need to be tested to see if they play out the way I imagine.
In the previous two posts, I argued that the most significant driver of rising health care costs are innovation and overutilization. While the former is desirable and a bullet I would argue we must make ourselves bite, bringing the latter under control would seem to do the most to slash the rapid rate of rise of our nation's health care costs. My ideas will focus mostly, therefore, on changes to our system that might reduce overutilization of health care resources.
While government regulation remains a critical tool in many areas of health care, in this area it has been and will remain unhelpful. This is because overutilization always happens, when it does, as a result of conversations between a health care providers and patients. "I really think I need an antibiotic, doctor," one patient says, when he doesn't because, like most infections, his is viral. "I think I need an MRI, doctor," says another patient with severe low back pain, when she doesn't because 99% of back pain is from musculoskeletal strain. "You need a stress test," an ER doctor says to a thirty-five-year-old triathlete with right-sided chest pain and no cardiac risk factors because there's a 1-5% chance his pain is cardiac. To limit overutilization enough to make a dent in our nation's health care bill, government regulators would have to effectively oversee the majority of these conversations across America. How could they possibly manage that?
Perhaps by returning to the thinking of our founding fathers, who leveraged basic principles of human nature to design our government (as demonstrated by their idea to separate the powers of the government into three branches that check and balance the power of the others). If we create the right incentives for providers, patients, and insurance carriers, perhaps self-interest can be leveraged to make our system not only less costly but optimally effective. I don't pretend to suggest this is the whole of the solution to our current crisis, but I do think it's a critically important part.
WHAT DETERMINES COST?
The answer depends on what position you occupy in the health care system. For providers and hospitals, the cost to provide a given service is determined by the direct costs (e.g., for a blood test, the cost of the phlebotomist, needle, syringe, alcohol swab, container, patient labels, etc.), indirect costs (the contribution each service must make to keep the lights on and the hallways clean, etc.), subsidy costs (the cost of some well-reimbursed tests, like cardiac catheterizations, must often be inflated to subsidize the cost of poorly-reimbursed tests, like mammograms), and desired profit margins. For insurance companies, the cost to provide insurance to beneficiaries is determined by provider/hospital charges, cost of administrating the plan, medical underwriting (a factor to account for the risk of utilization of health care resources for specific beneficiaries), and desired profit margins (not applicable to government-sponsored insurance). For health care consumers, the cost to receive health care services is determined by insurance premiums, co-pays (a fixed dollar amount that the consumer must pay for each service) and/or co-insurance (a fixed percentage amount that the consumer must pay for each service), deductibles, and out-of-pocket costs.
It is, of course, even more complicated than that. For example, providers and hospitals will charge different rates for the same procedure depending on the insurance carrier (carriers bringing large volumes of patients into health care systems often getting volume discounts). And different insurance carriers will reimburse providers at different levels for the same procedure (Medicaid, for example, typically pays almost pennies on the dollar to health care providers). Nevertheless, this frames the basic context in which I'd like to put forth the following ideas.
HEALTH CARE COVERAGE
All insurance carriers must start to reimburse health care providers and institutions at the same rate for the same things. As mentioned above, currently government-sponsored health plans (e.g., Medicaid) reimburse providers and institutions at a rate far below that of private insurance (meaning if a hospital charges $100 for a chest x-ray, for example, Medicaid might pay only $10), which has had two important effects:
- Providers and hospitals must inflate their charges in order to get paid what they really want. Comparing prices for services between providers becomes almost impossible as the insurances they accept—and therefore the degree to which they inflate their charges—varies. The people this matters to the most are those without health insurance who pay 100% of expenses out-of-pocket as they are required to pay the full amount (though, in many instances, out-of-pocket discounts are provided).
- Providers and hospitals are systematically attempting to avoid caring for Medicaid patients. Medicaid is the least desirable insurance because it reimburses providers and hospitals at the lowest rates. As a result, many providers and hospitals have been working on subtle ways to decrease the number of Medicaid patients they see (e.g., reserving a limited number of Medicaid slots in their schedules so when Medicaid patients call for appointments they often have to wait a long time to be seen, which discourages them from wanting to come, etc.). Medicare's reimbursement rate has come down in recent years to near Medicaid's, which means seniors may soon be at risk for the same disenfranchisement as we're seeing with the poor (the main reason it hasn't started to happen already is that it's been harder politically to refuse to care for senior citizens).
If our nation's health care providers and institutions were able to expect full (and therefore equal) reimbursement from all insurance carriers, they'd find no one insurance carrier—and therefore no one type of patient—more desirable than any other. Attempts to disenfranchise any one group of patients, then, would cease.
What negative consequences might result from this change? Most obviously, it would work directly against the goal of reducing costs, at least for insurance carriers. The cost of insuring patients, and therefore the cost of insurance premiums, would rise dramatically unless other measures were taken to reduce the volume of services being performed without compromising health care outcomes.
