What Is the Cause of Excess Costs in US Health Care? Take...

What Is the Cause of Excess Costs in US Health Care? Take Two

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We’ve discussed it before. Why are costs so much higher in US healthcare compared to other countries? The Washington Post has a pointless article which seems to answer with the tautology costs are high because healthcare in America costs more. How much more? Well, we spend nearly twice as much per capita as the next nearest country while failing to provide universal coverage.

In the WaPo article they make a big deal of the costs of individual procedures like MRI being over a thousand in the US compared to $280 in France, but this is a simplistic analysis, and I think it misses the point as most authors do when discussing this issue. The reason things costs more is because in order to subsidize the hidden costs of medical care, providers charge more for imaging and procedures. For instance, Atul Gawande, in his New Yorker piece “The Cost Conundrum” wonders why it is that costs are higher to treat the same conditions in rural areas and in a major academic centers like UCLA than at a highly specialized private hospitals like the Mayo Clinic? I think the reason is it’s not nearly as expensive to administer and provide care for a select group of insured midwesterners at the Mayo than it is to provide care to the underserved in the poor areas of inner-cities and in poor rural locations.

When you are serving a poorer, under-insured population like you get in LA or Baltimore for that matter, the insured are charged more because EMTALA requires hospitals to treat all comers, regardless of insured status. Medical centers like UCLA or the University of Maryland are the final common pathway for the sickest and poorest patients who, even if stabilized at smaller local hospitals, are immediately transferred to such centers. These patients are expensive to treat, often have more co-morbidities like HIV or drug use and mental illness, and there is no reimbursement guarantee for taking care of them even though it is our legal and ethical responsibility to do so.

Further, the cost of defensive medicine, which applies to this patient population as much as any other, ramps the costs of all hospital admissions and medical practice in general. It is also incredibly hard to quantify its contribution to the overall costs of care.

As a result, to pay for excessive care of the uninsured, all procedures, all tests, all imaging, and all hospitalizations cost more. Caring for inpatients and the uninsured is expensive, so the costs are transferred to the prices of outpatient elective care and procedures which are often administered in a fee-for-service model. Hospitals have an incentive to provide as much outpatient elective care as possible in order to offset these other costs and to generate revenue. The providers that perform procedures or expensive testing then become far more expensive to pay as they are the major revenue generators for the hospital (hence surgeon vs pediatrician pay). Especially because in order to generate more revenue they are paid based on how many procedures they perform. All the incentives are towards more utilization, more procedures, more revenue generation. This is the hidden tax of the uninsured.

In a way, we have universal healthcare already, but we pay for it in the most irresponsible and costly way possible. We wait for small problems to become emergent, treat them in the most expensive outpatient provider possible (the ER), and then when we can’t pay the bills for the uninsured, we transfer the balance by increasing the costs of the care of insured patients showing up for their cholecystectomies or back surgery. Tack on the costs of defensive medicine and the fear of being sued unless everything is done to cover your ass, and you have a recipe for extremely costly care.

Other factors figure into higher costs as well, including hugely higher costs of medicare administration since Bush privatized it, higher prescription drug costs since Bush passed medicare part D and prevented bargaining with drug companies, and our incredibly high ICU expenditures at the end of life. The McKinsey report on excess costs demonstrated most of these issues in 2008. This is not news. The US spends far more on medical administration, outpatient/ambulatory care (with hospital-based outpatient care increasing most rapidly in costs), drugs, doctors salaries, and end-of-life care than we should as a percentage of our GDP.

So what should we do about it? At every step we need dismantle the tendency towards increasing costs. Here are my suggestions:

We should have universal health care so that everyone can visit a physician early, take care of their problems while they are still manageable, and to provide cheap preventative care.

We need to strongly discourage overuse of the ER, as it is the most expensive form of ambulatory care and they are currently overburdened with treatment of non-emergency conditions.

We need to change the destructive Medicare part D legislation to allow collective bargaining by Medicare for cheaper drug costs as they do in other countries or as they do in VA health system where drug costs are 50% less.

We have to end fee-for-service reimbursement systems that create incentives for hospitals to generate revenue by pushing more procedures, more tests, and more expensive utilization of resources. One thing that Atul Gawande got correct was that when physicians were salaried independent of their revenue-generation for the hospital, as at Mayo, costs go down. When incentives are created for physicians to generate more revenue for the hospital, physicians will generate more revenue for the hospital.

We have to pay physicians based on their amount of training. Surgeons will still win under this system, as they should, because their training is typically 4 years of medical school, 5-7 years of residency followed by 2 years of fellowship compared to 3-5 years for most internal medicine specialties. Paying for all that education is expensive.

Further the opportunity costs of the lost income-generating years in training compared to comparable careers in law or business need to be paid back to physicians somehow. We dedicate hundreds of thousands of dollars to medical school, work 80 hour weeks for years as residents for a puny salary, and basically defer a decent income for an additional decade in order to gain skills to take care of patients. The quality of physicians will suffer, especially those that require longer training, if they are not paid commensurate with their personal investment in training. We could reasonably expect physicians to expect less compensation if their education costs are drastically reduced or eliminated, and if resident incomes can be improved relative to the amount of work they perform. Granted, this will never happen.

Finally, we have to fire those who have decided any discussion of making end-of-life care more evidence-based means creating “death panels” to kill grandma. We need better science about about outcomes at end of life. We need to get better at knowing when care is futile and when it should be stopped for the benefit of the patient as well as health care resources. And as part of universal care everyone should discuss a living will and end-of-life decisions with their physicians. Initially the health care reform act included provisions to reimburse physicians for discussing living wills with their patients as a separate consultation. This, under the death panels stigma, was eliminated.

I can think of few other acts of such far reaching harm for cheap political points in my lifetime. People need to make decisions about how they want to die before these decisions are out of their hands. They also need to understand what death looks like in the ICU. Most physicians would not chose this end for themselves. When physicians are called upon to do everything at the end of life the patient will likely end up with tubes in every orifice, central lines, ventilators, powerful drugs, and lots, and lots, of iatrogenic pain. It’s not the way I want my life to end, and I think if people understood that maximum intervention often generates suffering with no real benefit, they would be less likely to chose this path for their loved ones. Not that ICUs aren’t amazing places where a great deal can be done for many patients, but they also can be a place for needless suffering when the patient has little to no chance of meaningful recovery. It is heartbreaking that Republicans destroyed the well-meaning efforts to scientifically study these situations so physicians and patients could be better informed and equipped to make such end of life decisions.

Mark Hoofnagle has a MD and PhD in physiology from the University of Virginia, and is now a general surgery resident. You can follow him at the Denialism blog where this post first appeared.

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59 Comments on "What Is the Cause of Excess Costs in US Health Care? Take Two"


Guest
Nate Ogden
Mar 7, 2012

If we rationed care like this our cost would be more in line with the rest of the world;

It is denying patients hip and knee replacements, cataract surgery or even IVF unless they agree to make radical changes to their lifestyle.
An investigation has revealed that one in four health trusts in England bars certain operations or procedures for smokers or those deemed too fat.

http://www.dailymail.co.uk/health/article-2111109/NHS-patients-refused-treatment-unless-change-lifestyles.html

Guest
Nate Ogden
Mar 7, 2012

Hi Mark, I’ll try to be nice and see if that has any better affect on your fixing some pretty egregious errors. Kevin Rogers insisted on leaving his in the article, hopefully your more concerned with accuracy.

“including hugely higher costs of medicare administration since Bush privatized it,”

What in the world are you talking about? Medicare has always been privately administered, the Blues had it locked up for decades on cost plus contracts riddled with fraud. Its always been a disaster, that is nothing Bush started.

“Since the beginning of the Medicare program, CMS has contracted with private companies to operate as intermediaries between the government and medical providers.”

“When you are serving a poorer, under-insured population like you get in LA or Baltimore for that matter, the insured are charged more because EMTALA requires hospitals to treat all comers, regardless of insured status.”

This has been disproven in numerous studies, there is no link between rates charged by a hospital and the percentage of their population who is uninsured. I’ll give you a perfect example that disproves your theory without question. In Cleveland you have my good friends the Cleveland Clinic with their every life deserves world class care at out of this world prices. The primary provider of care for the uninsured though is MetroHealth. As a payor I would personally drive any client to MetroHealth if they went their instead of CC. Billed charges at MetroHealth are ½ or less than those at CC. I had a 5 day stay for brain surgery at MetroHealth billed out at 44K and discounted to 25K. Cleveland Clinic will charge 40K to treat a cold.

Another problem in your analysis is you ignore choice, just because a hospital has to or does charge $2400 for an MRI doesn’t mean the patient needs to go there to have the MRI. Freestanding imaging centers will do MRIs for $600. Why when $600 MRIs are available are patients receiving $2400 MRIs? That is not a problem of cost of care, its design flaw in a system that doesn’t hold beneficiaries responsible for the cost of their care. The rest of the world solves this problem by only offering $600 MRIs and rationing them to the point many people give up and never get them. See the explosion of private imagining in Canada as an example.

“Caring for inpatients and the uninsured is expensive, so the costs are transferred to the prices of outpatient elective care and procedures which are often administered in a fee-for-service model.”

This could be easily solved by going to non hospital settings to receive these services. It has also been shown that hospitals charge what they do because they can, for example if you don’t live in the Cleveland market you can get procedures done at Cleveland Clinic cheaper than if you did. They offer very steep discounts to attract patients they would not otherwise treat. The cost is high because they can get away with it, not because they are covering unreimbursed care.

“higher prescription drug costs since Bush passed medicare part D”

I think you meant spending not cost, no study has ever shown the price of Drug X is higher than it would have been because Bush passed Part D. More people have access to drugs so spending is up but not cost. You assume if the government could bargin on price they would be lower, I could point you to a million cases of the government bargaining for higher prices then what the person on the street would pay.

“We should have universal health care so that everyone can visit a physician early,”

This follows this comment;

“At every step we need dismantle the tendency towards increasing costs.”

Universal Healthcare would add billions annually to our spending, how is that dismantling the tendency towards increasing cost?

“provide cheap preventative care.”

There is no such thing as cheap preventive care, again study after study shows most preventive care is wasteful. How many men get PSAs after age 70? Women getting to many Breast Exams. To much testing for illnesses people are likely to never get. Cheap preventative care might be free to the patient but it is very expensive to the payor. If you can get a free X exam every year doctors are going to push it even if its not needed. Terrible issue with over utilization.

“as they do in VA health system where drug costs are 50% less.”

Drug cost is not the same as drug spending and I’ll wager you didn’t adjust for your differing population when you compared PMPM drug SPENDING. The price the VA pays for Lipitor is not 50% less then what Medicare Part D pays for Lipitor.

If you really want to control Rx cost you only reimburse up to what the generic cost for that therapeutic class. Something like 85-90% of all illness can be treated by a generic drug according to the WHO, they have their list of 300-400 essential drugs that will treat almost everything. Cover those at 100% and exclude everything else. That is basically how VA controls cost;

Recently, the Lewin Group, a prominent consultancy that models health policy proposals, compared the formularies of the VA, the most popular FEHBP plan, and the two Medicare Part D plans with the highest enrollments, focusing on the 300 drugs most prescribed to senior citizens. Lewin found that, of the 300 drugs, 106 (35 percent) are not included in the VA formulary, compared to 16 (5 percent) in the FEHBP formulary, and 18 (6 percent) and 19 (6 percent) in the Part D plan formularies

A separate analysis by Alain Enthoven and Kyna Fong of Stanford University[8] explained that, overall, less than one third of the 4,300 drugs available to Medicare beneficiaries are on the VA national formulary.[9] A closer look at the VA formulary reveals that new and innovative drugs, which tend to be more costly, are often excluded. According to a study conducted by Columbia University Professor Frank Lichtenberg, only 38 percent of the drugs approved by the FDA in the 1990s and 19 percent of the drugs approved since 2000 are on the VA national formulary.[10]
“We have to end fee-for-service reimbursement systems that create incentives for hospitals to generate revenue by pushing more procedures, more tests, and more expensive utilization of resources.”

And go back to capitation where providers and HMOs denied care to maximize profit from their capitates salary?

“One thing that Atul Gawande got correct was that when physicians were salaried independent of their revenue-generation for the hospital, as at Mayo, costs go down.”

Atul needs to look up selection bias. Review the PHOs and IPOs in Southern CA in the 90s and tell me how great it was.

“We have to pay physicians based on their amount of training.”

Why do I need a PCP with 20 years of education? Our failed teacher compensation model proves this, do we need an elementary art school teacher with a PhD and countless additional credits and certificates? Further an entire industry sprung up from the NEA selling bogus certificates that got the teachers bump in pays with no improvement in the teacher. Pay for training is rife with fraud and a terrible idea for any industry.

“Finally, we have to fire those who have decided any discussion of making end-of-life care more evidence-based means creating “death panels” to kill grandma.”

Do we also fire those that have decided we don’t need any discussion because it could never happen? I see far more people arguing we don’t need to even discuss it so we should just trust the “experts” then I see people claiming any discussion is akin to creating death panels. I would argue your distorting their concerns to make then sound more extreme so you can completely dismiss then without any discussion.

Guest
Tom
Mar 8, 2012

Just curious but what idea’s would you employ to address these issues affecting our healthcare delivery system?

Guest
Nate Ogden
Mar 8, 2012

I’ll answer generally, if there are specific problems I can get more specific.

First we need to fix expectations. Every life doesn’t deserve world class care for every ailment. There is zero chance we can maximize every life, people will die and they will die of conditions that could have been treated.

Everyone is responsible for their own health, there is not some do good fairy healthcare angel that will make the decisions for you and take care of your problems.

Insurance eliminates all first dollar coverage, insurance is for unexpected or large expenses. This will force people to engage in their care and develope relationships with their doctors.

Clearify usuary laws so there is no question provides can’t charge what ever they feel like. Hospitals will be forced to live with cost plus a low double digit number.

End benefit mandates, allow people to buy the policies they want and can afford. If they buy a policy that doesn’t cover a drug or treatment then they don’t get that drug or treatment. This will put tremendous pressure on pharma to cut cost. Plenty of fat so they can afford to.

Clarify malpratice to allow a safe haven when doctor follows treatment guidelines. Not required to but if they do they can’t be sued.

End Medicare and Medicaid, they have both been compl;ete failures and almost took down our entire nation.

If you don’t have insurance you don’t get treated period. It’s America, we have no right to force someone to buy a product they don’t want and we have even less right to force someone to work for free to treat those that decide to go uninsured.

Build off the Fed banking system to have a single clearing house for insurance billing and payment. This is as much for efficency as public health/data collection.

Arrest and Deport every illegal getting free healthcare, i.e. no more free dialysis at the cost of US tax payors. Bill their home nation for their care and reduce aid and implement tarrifs until its collected and our providers paid back.

That would be day 1

Guest
Mar 26, 2012

Sorry for the late replies.

Let’s get to it

i Mark, I’ll try to be nice and see if that has any better affect on your fixing some pretty egregious errors. Kevin Rogers insisted on leaving his in the article, hopefully your more concerned with accuracy.

Yay.

“including hugely higher costs of medicare administration since Bush privatized it,”

What in the world are you talking about? Medicare has always been privately administered, the Blues had it locked up for decades on cost plus contracts riddled with fraud. Its always been a disaster, that is nothing Bush started.

How do you explain the sudden 30% per beneficiary administrative increase with medicare advantage plans and part D. See McKinsey report page 21

This has been disproven in numerous studies, there is no link between rates charged by a hospital and the percentage of their population who is uninsured.

You only cite one of the conditions, I also mentioned poverty. The cost of “mission” services in medical centers in impoverished areas such as LA county or Balitmore is well known. I personally take care of folks in Baltimore, our rates of chronic diseases are worse, the HIV rate is staggering, and no one has insurance. That’s why the MRI costs $2600.

Another problem in your analysis is you ignore choice, just because a hospital has to or does charge $2400 for an MRI doesn’t mean the patient needs to go there to have the MRI. Freestanding imaging centers will do MRIs for $600. Why when $600 MRIs are available are patients receiving $2400 MRIs? That is not a problem of cost of care, its design flaw in a system that doesn’t hold beneficiaries responsible for the cost of their care. The rest of the world solves this problem by only offering $600 MRIs and rationing them to the point many people give up and never get them. See the explosion of private imagining in Canada as an example.
As an inhospital physician choice is meaningless. The costs are high for in hospital tests because we have a captive audience and it’s how we can get higher reimbursement.

“Caring for inpatients and the uninsured is expensive, so the costs are transferred to the prices of outpatient elective care and procedures which are often administered in a fee-for-service model.”

This could be easily solved by going to non hospital settings to receive these services. It has also been shown that hospitals charge what they do because they can, for example if you don’t live in the Cleveland market you can get procedures done at Cleveland Clinic cheaper than if you did. They offer very steep discounts to attract patients they would not otherwise treat. The cost is high because they can get away with it, not because they are covering unreimbursed care.

Yes, fee for service creates perverse incentives for overutilization. This is not just a response to paying for the unreimbursed care. It’s also for profitability in general.

“higher prescription drug costs since Bush passed medicare part D”

I think you meant spending not cost, no study has ever shown the price of Drug X is higher than it would have been because Bush passed Part D.

Correct

More people have access to drugs so spending is up but not cost. You assume if the government could bargin on price they would be lower, I could point you to a million cases of the government bargaining for higher prices then what the person on the street would pay.

Wrong, see the VA health system. It pays 50% of what medicare does for the same drugs.

“We should have universal health care so that everyone can visit a physician early,”

This follows this comment;

“At every step we need dismantle the tendency towards increasing costs.”

Universal Healthcare would add billions annually to our spending, how is that dismantling the tendency towards increasing cost?

I once took care of a guy who didn’t come in to have a boil lanced because he lacked insurance. When he finally presented he was septic, had a hole in his cheek I could stick my pinky through, and ended up with a 10 day stay, ICU stay, and 12 hours of surgery.

It has been demonstrated, most recently in Health Affairs in the Richmond area analysis, that the cost of the uninsured’s medical care decreases over the course of 3 years when they are given coverage. This resulted from the increased use of PCPs(cheap) and decreased use of ERs and fewer hospitalizations (expensive). It’s actually more expensive to the state to have an uninsured population than to just provide insurance.

“provide cheap preventative care.”

There is no such thing as cheap preventive care, again study after study shows most preventive care is wasteful. How many men get PSAs after age 70? Women getting to many Breast Exams. To much testing for illnesses people are likely to never get. Cheap preventative care might be free to the patient but it is very expensive to the payor. If you can get a free X exam every year doctors are going to push it even if its not needed. Terrible issue with over utilization.

Screening and preventative care are different issues. These are current controversies in medical care and are interesting topics on their own. See above.

Drug cost is not the same as drug spending and I’ll wager you didn’t adjust for your differing population when you compared PMPM drug SPENDING. The price the VA pays for Lipitor is not 50% less then what Medicare Part D pays for Lipitor.

Wrong
For the cholesterol-lowering drug Zocor, the cost of a year’s supply of 20 milligram tablets would be $1,485.96 under the cheapest Medicare Part D plan, compared to $127.44 under the VA.

see here

A separate analysis by Alain Enthoven and Kyna Fong of Stanford University[8] explained that, overall, less than one third of the 4,300 drugs available to Medicare beneficiaries are on the VA national formulary.[9] A closer look at the VA formulary reveals that new and innovative drugs, which tend to be more costly, are often excluded. According to a study conducted by Columbia University Professor Frank Lichtenberg, only 38 percent of the drugs approved by the FDA in the 1990s and 19 percent of the drugs approved since 2000 are on the VA national formulary.[10]

Which of those drugs are NME’s? Who cares if you can’t get a me-too drugs or their use is discouraged? I work at the VA, there’s no drug there I need I can’t get, even if it’s off formulary. I just have to write a stupid note into the chart. The VA has preferred medications, usually generics, but when they can’t get them they have name brand drugs.

“We have to end fee-for-service reimbursement systems that create incentives for hospitals to generate revenue by pushing more procedures, more tests, and more expensive utilization of resources.”

And go back to capitation where providers and HMOs denied care to maximize profit from their capitates salary?

False dichotomy. I only suggested we reverse fee for service that creates incentives for physicians to overutilize.

“We have to pay physicians based on their amount of training.”

Why do I need a PCP with 20 years of education? Our failed teacher compensation model proves this, do we need an elementary art school teacher with a PhD and countless additional credits and certificates? Further an entire industry sprung up from the NEA selling bogus certificates that got the teachers bump in pays with no improvement in the teacher. Pay for training is rife with fraud and a terrible idea for any industry.

Umm, what? I’m not talking about pay by degree. We all have the same damn degree. I’m talking about years of residency. You’re not going to get good neurosurgeons if their training (10 years) is paid equivalent to internal medicine (3 years)

“Finally, we have to fire those who have decided any discussion of making end-of-life care more evidence-based means creating “death panels” to kill grandma.”

Do we also fire those that have decided we don’t need any discussion because it could never happen? I see far more people arguing we don’t need to even discuss it so we should just trust the “experts” then I see people claiming any discussion is akin to creating death panels. I would argue your distorting their concerns to make then sound more extreme so you can completely dismiss then without any discussion.

The mere use of the “death panel” label represents the dishonesty of the critics of those provisions. No such thing existed. They even vilified provisions that would allow doctors compensation for discussion of living wills. How terrible is that? For cheap political points politicians stoked paranoid fears of euthanasia of grandma when there is absolutely no basis for this.

Guest
Nate Ogden
Mar 27, 2012

“How do you explain the sudden 30% per beneficiary administrative increase with medicare advantage plans and part D. ”

Wow, you are aware part D did not exist prior to Bush so when he passed the laws that created it all of those fees would be new….you do know that right? Further you link to one of the worst junk studies ever written. Third graders do better work then the McKinsey study you linked.

You also imply that increasing administrative cost is bad, people that actually know this subject matter would tell you Medicare needs to drastically increase its administrative cost. It loses $700+ per member per year in fraud. It should spend 10s of billion more and eliminate a few hundred billion in fraud.

They don’t even define what they are calling MA admin so you know what they are talking about.

“That’s why the MRI costs $2600.”

No it isn’t. If that was even partly true then hospitals that provide more care or more sever care would charge more, that has been disproved endlessly. MetroHealth in Cleveland treats far more mission care then Cleveland Clinic yet charges far less. Its like that is most metro areas, charity care does not reflect cost.

“fee for service creates perverse incentives for overutilization.”

Incorrect, 3rd party payment creates perverse incentives. When the member pays, ala HSA, we see overutilization decline substantially. It is not FFS that is the problem its people spending other peoples money, a phenomenon we see if numerous walks of life.

“Wrong, see the VA health system. It pays 50% of what medicare does for the same drugs.”

You falsely assume the VA can easily be replicated to serve Medicare. The VA treats a very small population that is better educated and more compliant then Medicare could ever be. VA pays doctors substantially less then most other providers, why don’t we start reimbursing all doctors at VA salaries and see how that goes over. Medicaid and VA are able to get their prices because providers/pharma make it up on everyone else. If you came in and said everyone is going to reimburse like Medicaid/VA the system would fall apart before the ink dried.

Look to Greece and Spain, if you don’t pay them enough they don’t make the drug available.

“It’s actually more expensive to the state to have an uninsured population than to just provide insurance.”

No where close to being true. People with access to unlimited healthcare live longer and spend considerably more in those last few years. The additional spending would be trillions of dollars. Then you have nursing home cost and longer SS cost as well. The sooner people pass away the better off the state. Its been claimed that the first person that will live to be 150 has already been born. That will blow up the welfare state. No amount of liberal math can pay for 85 years of SS and Medicare with 30 years of work.

“Who cares if you can’t get a me-too drugs or their use is discouraged?”

LOL the pain in my ass members or run to their HR and complain like I denied their cancer treatment. Spend some time on the other side of the fence and you will see. We still have significant brand usage when generics are available and the public demands access to those drugs. That is why comparisons of VA to Medicare is flawed, VA members are a much more compliant population.

Specific to your example why would someone fill zocor? Its available, freedom of choice its what the public demands, but majority of people get Sim for $30 per year. What does VA pay for that? That $30 is for 12 months worth.

“No such thing existed.”

Couple hundred families in UK have dead family members that would disagree with you. Would you really argue Liverpool Care Pathway is not a death panel?

Guest
Mar 27, 2012

“How do you explain the sudden 30% per beneficiary administrative increase with medicare advantage plans and part D. ”

Wow, you are aware part D did not exist prior to Bush so when he passed the laws that created it all of those fees would be new….you do know that right? Further you link to one of the worst junk studies ever written. Third graders do better work then the McKinsey study you linked.

Responding by denying the data is not helpful. Is their data incorrect? The McKinsey study is very thorough and just shows figure after figure describing the system. When I reply with data and you simply say, “bah, McKinsey”, I start to lose confidence you’re interested in an honest debate.

The fact is, administrative costs per medicare enrollee rapidly increased during the Bush enacted legislation.

You also imply that increasing administrative cost is bad, people that actually know this subject matter would tell you Medicare needs to drastically increase its administrative cost. It loses $700+ per member per year in fraud. It should spend 10s of billion more and eliminate a few hundred billion in fraud.

700 per member in fraud? Cite data please, that’s a pretty extraordinary number and I’ve seen figures that suggest less than 3% of expenditure is fraud.

“That’s why the MRI costs $2600.”

No it isn’t. If that was even partly true then hospitals that provide more care or more sever care would charge more, that has been disproved endlessly. MetroHealth in Cleveland treats far more mission care then Cleveland Clinic yet charges far less. Its like that is most metro areas, charity care does not reflect cost.

This is interesting because the opposite effect is explored by Atul Gawande who found that Mayo was far more inexpensively run for similar procedures than larger medical centers like UCLA. Maybe Cleveland Clinic isn’t a good example of the effect? Still, if a hospital is paying for people who don’t pay for their medical care, who is picking up the bill?

“fee for service creates perverse incentives for overutilization.”

Incorrect, 3rd party payment creates perverse incentives. When the member pays, ala HSA, we see overutilization decline substantially. It is not FFS that is the problem its people spending other peoples money, a phenomenon we see if numerous walks of life.

We’re talking about different actor’s incentives here. FFS creates incentives for physicians to spend their patients money. Plans without co-pay or some patient expenditure make the patient want to spend the insurance companies money. The system has to be designed so everyone is cognizant about costs and rewarded for providing cheaper care. When physicians are compensated based on their RVUs, even hired or fired based on how many RVUs they generate, they’re going to generate RVUs dammit.

“Wrong, see the VA health system. It pays 50% of what medicare does for the same drugs.”

You falsely assume the VA can easily be replicated to serve Medicare.
No, I falsely assumed that you would accept I answered your question and you were incorrect. For the same drug, the VA pays less. I didn’t say the VA should be the universal system or medicare should have VA hospitals. I simply said the VA pays less for drugs because they bargain.

The VA treats a very small population that is better educated and more compliant then Medicare could ever be.
woah. I’ve worked at the VA. Support this with data. I love the vets, don’t get me wrong. But I’ve always found them to be drinkers, smokers, and often very ornery. At the same time they’re bizarrely indestructible despite their comorbidities. Anyway, that’s a hell of a statement, back it up.

VA pays doctors substantially less then most other providers, why don’t we start reimbursing all doctors at VA salaries and see how that goes over. Medicaid and VA are able to get their prices because providers/pharma make it up on everyone else. If you came in and said everyone is going to reimburse like Medicaid/VA the system would fall apart before the ink dried.

True, but there are very nice things about working about the VA. The control over your time is far better, you have residents, and the VA is very supportive of residents. It’s still a good salary, and you aren’t having to pay for malpractice and administrative costs compared to what you would as a private doc. I wouldn’t mind working at the VA at all.

Look to Greece and Spain, if you don’t pay them enough they don’t make the drug available.

I don’t get the reference. cite something.

“It’s actually more expensive to the state to have an uninsured population than to just provide insurance.”

No where close to being true. People with access to unlimited healthcare live longer and spend considerably more in those last few years. The additional spending would be trillions of dollars. Then you have nursing home cost and longer SS cost as well. The sooner people pass away the better off the state. Its been claimed that the first person that will live to be 150 has already been born. That will blow up the welfare state. No amount of liberal math can pay for 85 years of SS and Medicare with 30 years of work.

Wow, you don’t get it do you. Now I’m starting to see the ideology that’s clouding your understanding. One, when you give people primary care they cost less, that’s the Richmond study I’m referring to. Two, you don’t get it. We’re already paying for universal coverage. I’m not saying we should offer people “unlimited coverage”. That’s putting words in my mouth. I’m saying, we’re already paying for everyone’s medical care, just in the stupidest way possible. We pay in the ER, we pay for critical problems that could have been address when they were less costly etc. In this country, when someone needs care, they get it. EMTALA guarantees that. We have just systematically refused to acknowledge we need to pay for that, and, not paying for basic care causes higher expenditures down the road. The CBO estimates the ACA will reduce the deficit. I cite a study showing offering primary care lowers expenditures by keeping the uninsured out of the ER. Where’s your data? You just have assertion, based on the false assumption that if people aren’t insured they’ll just quietly go die in the gutter. Nope. They still show up to the hospital. They still get care. It’s just more expensive.

“Who cares if you can’t get a me-too drugs or their use is discouraged?”

LOL the pain in my ass members or run to their HR and complain like I denied their cancer treatment. Spend some time on the other side of the fence and you will see. We still have significant brand usage when generics are available and the public demands access to those drugs. That is why comparisons of VA to Medicare is flawed, VA members are a much more compliant population.

Well, I didn’t mention it in this article, but in other discussions I’ve emphasized that we need to ban DTCA. We are one of two countries in the world that allow it, and New Zealands experience was similar to ours in that once DTCA was permitted, drug expenditures skyrocketed. DTCA encourages overutilization, and non-evidence based use of sibling drugs over generics. Nexium, for instance, isn’t even a different drug than omeprazole, the generic (omeprazole is just a racemic mixture of eso-omprazole – the active ingredient – and an inactive enantiomer), but thanks to DTCA and a defective drug approval process, it’s an expensive, blockbuster drug. The data showing it’s superiority is specious, and it has the same side effect profile. I’m all for explaining why generics and me-too drugs should ignored. That’s an education problem I’m willing to take on. People complaining about it is not a reason not to discourage the waste of money and resources on sibling drugs. 90% of new drugs are siblings. Only 10% are NME. As long as pharma is incentivized to produce non-novel drugs, that’s what they’re going to make, and we have to take steps to get them focused on novel mechanism exploration again. That means, undermine the sibling drug market, ban DTCA, and educate consumers and physicians about evidence-based prescribing.

“No such thing existed.”

Couple hundred families in UK have dead family members that would disagree with you. Would you really argue Liverpool Care Pathway is not a death panel?

Red herring. I was talking about the provisions in the ACA, not whatever the hell they’re doing in Liverpool. The “death panel” accusations were based on funding for research into outcomes at end-of-life to inform evidence-based decision making, as well as reimbursement to PCPs for discussing end of life care. That’s it. I don’t get how, if a procedure or treatment is found to be futile, inflicting it on someone before they die is somehow doing them a favor. I’ve treated the dying, and ICU care and end-of-life care is too invasive, too aggressive. Read my link here to get what I’m talking about. More data, more evidence, and less iatrogenic harm at the end of life would be a boon to patients, and it hurts me deeply that we’ve delayed a mature examination on how we treat the dying over this political sideshow.

Guest
Mar 27, 2012

@MarkH
You’re investing a lot of energy attempting to reason with this guy. Many have been there, done that, and discovered it’s best to let him have the final say and move to something else.
JMO.

Guest
Nate Ogden
Mar 27, 2012

Debunk the same study again and again it starts to get old.

And they protect their PDF so you can’t copy and paste making it even more tedious. Expected spending is a meaningless number when devoid of cultural realization. Americans drive bigger cars, you could say all of that is wasted spending but that ignores the fact we like bigger cars and are willing to pay for bigger cars. It’s not scientifically accurate to call that excessive. Disposable income could arguably all be excessive.

As that pertains to this paper Americans consume healthcare very differently then Europeans. We, for the most part, would not tolerate their systems. What is very acceptable in other OECD countries would be cause for legal action here.

Health admin 91 billion ESAW….based on what? I can assure you they did not factor in actual processes and cost to administer when they come up with this number. You can’t separate the administration from a system and say the French could have administered it for 91 billion less.

Reference to life expectancy should almost never be included in a discussion of insurance and healthcare quality unless they do considerable adjust for non related factors, which they do not make mention of doing. Infant mortality again I don’t see mention of the needed adjustments.

45 million Americans are not uninsured, again proof they play lose with the data, 45 million people in America. Which raises another issue, show me another OECD nation with an illegal immigration problem as bad as ours. Unless they want to claim that has no effect on cost or outcomes?

Page 6, spending as % of GDP. First problem i have is their liner expectation. If I have an extra $100 I don’t go buy a $4000 flat screen. As your wealth increases the amount you have to spend on extravagant expenses increases disproportionally. If your making polish money you might only have $1000 to spend. Which is 6.6%. Once your pulling down a fat 45K though what else do you spend the money on? You already have a second car, you got the TV. You have so much disposable income it all goes to frivolous items. We have more and bigger cars, bigger houses, more TVs, more everything. If we didn’t blow 2.1 trillion in healthcare would have that money gone?

This can be verified another way, look how much we waste on questionable supplements and beauty products. 90% of which are pure 100% waste of money. If you have the money to waste and going to the doctor for an MRI makes you sleep easier you do it. If having an MRI twice as detailed as needed makes you feel better and you have the money you spend it.

Their Exhibit 1 is flawed and all the deductions they make from it.

They keep comparing US Healthcare to China spending? For what purpose? No serious study would make this comparison let alone make it 3-4 times. What is one to deduce from that comparison?

If we do can 90% of Hernia outpatient and NHS only 40% why is that 50% difference not over expected? Is one right and one wrong? If Brits prefer a couple days in the hospital and Americans prefer to go home and watch basketball, Hospitals don’t have the good sports packages, how is one preference expected over the other?

cost to support bed day, again is very subjective, most Americans would not tolerate an NHS stay.

Drugs, most of it is Americans choose brands over generics, no matter how much I fight with them. When you have disposable income you make decisions like that, what is expected?

Apparently our insurers are paying to much in taxes, should we do away with those so we can be more in line with the OECD?

Item 8 shows McKinsey are a bunch of socialist that don’t grasp free market evolution. “A multi-payer system(and multistate regulated system) creates extra costs and inefficiencies in the form of redundant marketing, underwriting, and management overhead that other OECD countries which have less fragmented payment systems, bear to a lesser extent.”

True but you also lose innovation and evolution that competition brings. I am doing things to serve my clients better and more efficiently manage cost I would never have done had I been a single payor with no competition. Far more often then not fragmented systems built on competition are more efficient then single government ran systems. Name a case of government doing it better?

Need to go watch the Cavs so I’ll pick this up later. Junk study based on meaningless measures.

Guest
Nate Ogden
Mar 27, 2012

An American, a Frenchman, Englishman, Spaniard, and 10 others walk into a buffet, what does the American eat. If you base that on what the other 13 ordered your wasting time.

Guest
Nate Ogden
Mar 27, 2012

Unfortunately not enough providers would take the trade offs the VA offers and worse not nearly enough patients are as educated and disciplined as the patients the VA treats.

The study you referenced was behind a paywall so I can’t see if it is like the others. Normally those studies fail to take into account the rationing ER waits instils. At the same time you argue people use care excessively how can you say giving them access to that system decreases utilization? At what point in our lives do we start making all these poor healthcare decisions that lead to such high cost?

“not paying for basic care causes higher expenditures down the road.”

When has anyone ever proposed offering just basic care, if you are I would be much more open to offering them a very basic and limited healthplan but that is actually illegal now. The proposal is to give them all full blown unlimited insurance which will not cost less. Plus healthier people live longer which increases other cost.

“The CBO estimates the ACA will reduce the deficit.”

That just means as they were told to score it, no one actually believes it will. CLASS was already cancelled so all of that deficit “reduction” is gone. The Medicare cuts it requires will never happen. Cadillac tax will never generate what they claims. Its all BS accounting.

aaaahh Nexium, I have a file full of people that would argue to the death Nexium is as unique as a snowflake. I can’t even get them to use Canadian Nexium for 1/4th the cost, apparently the air up there does something to it.

I have an easier solution to the drug problem as long as the government doesn’t try to “fix” it. We just don’t cover them. I’m big believer in generic only drug plans or therapeutic based pricing. If people want to waste the money I think they should be allowed to, just don’t expect others to pay for it.

I have no problem with our spending if it wasn’t borrowed money. We don’t have people starving, old people are not freezing to death or croaking from heat stroke like in Europe. I much rather we spend the money on healthcare then cheap Chinese goods, at least it stays in our economy.

People are concerned what is in ACA could turn into Liverpool because of the lack of safeguards. If you study the LPCP you would see it wasn’t a law that was written or even a public discussion. It was a meaningless board that came up with these rules then it swept across the country. What in ACA prevents ICAB from doing the same thing? Problem is people that have no understanding of LPCP bash those that do without comprehending how they are so similar. Have you read the history of Liverpool Care Pathway? I’ll wager you have not from your remark.

Guest
Mar 7, 2012

I don’t agree with all that is said here but overall I like this post a lot.

These I like:
==>We should have universal health care
==>strongly discourage overuse of the ER
==>change the destructive Medicare part D legislation
==>end fee-for-service reimbursement systems
==>get better at knowing when care is futile and when it should be stopped

I would add…

In the interest of universal care a more robust community health clinic system and incentives for hospitals to arrange for 24-hour non-medical adjunct services for every ER so those people can stop complaining about non-emergency walk-ins. (Furnish the service where the need is presented. What a concept. Sounds like a private sector notion to me.)

Dr. Hoofnagle writes, We could reasonably expect physicians to expect less compensation if their education costs are drastically reduced or eliminated, and if resident incomes can be improved relative to the amount of work they perform. Granted, this will never happen.

Not only in the medical field but most of education in America is vastly too expensive, not because the faculty and staff are getting overpaid but due to the competition and branding efforts of the schools, aided and abetted by the Educational-Banking-Industrial Complex. There need to be more government grants, low-interest loans and oversight of lending institutions to insure that students are not being ripped off. Too many newly minted graduates are starting life too far in debt at a time when their earning potential is at it’s lowest, as they face housing, transportation, insurance and lifestyle expenses for the first time. There is something bad wrong with this picture.

End of life care, everybody knows, eats up many lifetimes of net worth. Inter-generational wealth and estate taxes vanish without even the satisfaction of an evening of recreational gambling. A good start would be to require every Medicare, Medicaid, VA, Tri-care and FEHB beneficiary to execute a concise advance directive for a central file for ready access by any provider, and further require they be updated every three years after the age of 60. It wouldn’t be a bad idea to have private health insurance plans do the same.

Lets hope we get through the GOP Suicide Watch without too much political scar tissue and hope further that the next Congress and the Supreme Court don’t feel the need to eviscerate an already weak and insufficient Affordable Care Act. Had it not been castrated by the failure of a public option a number of these problems would by now be waning.

Guest
Nate Ogden
Mar 7, 2012

“There need to be more government grants, low-interest loans ”

This is why cost of education has increased, there was a study recently that tracked increases in government assistance to increase tution controlled by schools that didn’t see increased asistance. Every time government gives away money it distorts the market. More money and loans will only make it worse.

Guest
David
Mar 15, 2012

I saw a study not long ago that provided an interesting picture on that assertion you just made Nate.

In terms of not-for profit schools. and state schools – it seems that there is not a strong linear relationship between money from goverment given out in loans to people and the cost of tuition rising at these schools.

though when they looked at For-profit schools – devry, westwood, etc…

they found a direct relationship between increases of goverment loans being given out and tuition prices increasing.

so it seems like its not as clear cut as we would like to believe.

i will say, i dont know if it took into account private loans – it would be interesting to see if that had an effect.

though i believe what needs to be included in a good study like this is a comprehensive look at

increases of college enrollment, amount of scholarships given out each year, governmental grants/loans for education, Private loans.

it may very well be that education cost have risen because enrollment has gone up over the years and the schools are incentive’s to charge such high prices simply to cover the costs of those that cant.

Guest
Nate Ogden
Mar 15, 2012

I would think more students at the same campus would decrease cost. Building cost doesn’t increase, the salary of president and administration is spread over larger base. More freshman crammed into the same lecture hall.

There has been a complete lack of good study, all we hear is everyone must go to college and we must spend more period, no analysis of what we get for that.

Guest
Nate Ogden
Mar 7, 2012

Democrats need to make up their minds, either you support rationing end of life care or you don’t. When HMOs did just this you were up in arms wanting to sue them, regualte them, or preferrably do away with them and go single payor.

Which is it?

WASHINGTON — With support from consumer groups, labor unions and the American Medical Association, Democratic leaders of Congress introduced legislation Tuesday that they said would protect patients by regulating the practices of health insurance companies and health maintenance organizations.

THE DEMOCRATIC BILL INCLUDES THESE PROVISIONS

The bill, opposed by Republican leaders of the House and the Senate, would define a long list of patients’ rights, guaranteeing a choice of doctors, access to medical specialists and the right to participate in trials of experimental drugs.

From Dem Underground

Imagine if you will a nightmarish situation in which you or a loved one get ill; and even though you are covered by an employer-based health insurance plan, a treatment that will prevent a lifetime disability or even save your life is withheld by the plan, because they call the treatment “experimental”

One of the most notorious cases in which ERISA stood in the way of justice was that of California teenager Nataline Sarkisyan. In 2007, the 17-year-old who had developed leukemia was denied a liver transplant — which her doctors at UCLA, some of the best in the world, said would give her a 65% chance to survive but the insurance company claimed was “experimental”

Dantzler’s 12-page plan would open the door for lawsuits against providers in cases when medical care is denied and a patient is harmed as a result, make it harder for an HMO to terminate doctors from its plans and require coverage for more “necessary” services, including bone marrow transplants, mental illness

for 20 years Democrats have been threatning to sue any insurance company or employer that didn’t cover any treatment no matter how long of a shot it was now. Now you want to wrap yourself in the cost control flag and pretend you want science based ratioing.

Guest
Barry Carol
Mar 7, 2012

I would add the following to Nate’s comments:

1. Tiered network and narrow network insurance products are finally starting to gain traction among employers. These should help to drive more patients to the most cost-effective providers.

2. Robust, user friendly price and quality transparency tools would make it easier for doctors to steer patients to the most cost-effective providers, whether it’s a less expensive hospital that can provide the needed high quality care, a non-hospital owned imaging center or a much cheaper generic drug.

3. Doctors need to make it part of their job to be more aware of care costs. If they were paying the bill for themselves or a family member and they think a service, test or procedure isn’t necessary or would be of only marginal benefit at best, don’t order it.

4. We need to give doctors safe harbor protection, especially from failure to diagnose lawsuits, if they follow evidence based guidelines where they exist.

5. With respect to end of life care, I wholeheartedly agree with the need for patients to execute living wills or advance directives and talk about their end of life goals and preferences, especially with family members. Doctors, for their part, need to provide patients and families with an honest assessment of the patient’s prognosis and to ensure that everyone fully understands what they’re signing up for if they opt for the most aggressive treatment approach. This is especially important for late stage cancer patients.

6. Regarding the cost of treating the uninsured, the Kaiser Family Foundation told us a few years ago that hospital bills, on average, are only about 6% higher than they would otherwise be because of uncompensated care. It’s a hugely overstated issue.

7. While I’ve never seen a good study on the subject, I suspect that American teaching and community hospitals have significantly more employees per licensed bed than comparable hospitals in other developed countries. Doctors employed by these hospitals also earn considerably higher salaries than their foreign counterparts because of both the high cost of their educations and the higher opportunity costs of careers in finance, real estate, law and other lucrative fields in the U.S. The average patient length of stay in a U.S. hospital is actually considerably lower in the U.S. than elsewhere though average acuity is higher and the number of licensed beds nationwide has been declining for decades and continues to despite population growth though outpatient services now account for 35%-40% of revenue for most hospitals, a sharp increase from earlier years.

Guest
Mar 8, 2012

I would appreciate further explanation of the “tiered network”. I’ve seen it applied in a few different ways – first, where the lowest cost (risk adjusted) providers are favored over higher cost ones because of the assumption that higher quality care results in lower costs; and second, tiering based on performance standards of the providers rather than financial outcomes. Are you talking about either of these models? And if you do tier providers, do you favor the top __%? If that model is applied, what happens to the lower tier providers? Do they have to displace a higher tiered provider, who then goes down in favorability? Or is there a way that 100% can get to the top tier, and then what’s the point after that? It looks very similar to “No Child Left Behind”, where schools just play musical chairs as the highest and lowest performers as they improve and then go down because other schools improve more. I would like a way to be able to find the provider that gives the best care for an individual, and allow the individual to bear some responsibility to find the right provider for their needs and suffer the consequences if they don’t. That gives the individual all the incentives to obtain the best care for themselves; no one can really do it for them, much less their employers.

Guest
MD as HELL
Mar 7, 2012

Don’t confuse “cost” with price and with payment. The reason prices are so high is too much money chasing healthcare with no regard for value. Decrease the dollars available and the price will go down. Therefore the payments and therefore the cost will go down. Introduce value and the use will plummet.

As we try to get all the tests and treatments for everyone (total bassackwards thinking, but that’s politics) the demand will increase the price. Trying to contain cost by lowering payment will decrease available supply and drive up prices. Shortages will be inevitable. If the politics cn stand it, shortage will be the preferred rationing tool.

Government can never determine the value of a test or treatment for the individual. They can only determine the political value of offering the benefit.

Not until there is a real market for healthcare services will there be honest prices and payments.

Guest
Mark Asplund
Mar 8, 2012

Great article over all but the The real cost driver? Specialists who think they have a right to living in the top 1%? Equipment and tests that aren’t needed and have no impact on outcomes? Insurance companies that add cost without adding any value (admin costs up to 40% of a visit) and too many specialist (which taxpayers paid to train) and which according to the Dartmouth Atlas studies drive up costs. The more ortho docs and specialty centers the more surgery with little real benefit to patients.

BTW – Who is paying the “puny” surgical residency and internship salary? At UCLA it starts at $42,000 and goes to $55,000 which is the average salary in the US. Why is that puny? There are plenty of highly qualified people who would be happy to be a doctor for that amount for life.

The ONLY cost you incurred was for your undergraduate and medical school just like a social worker might incur in order to graduate and work for $15 an hour helping the sickest and poorest.. They somehow are able to pay back their education why can’t a doctor? Why do only 4% of US medical students go into primary care? It is because of greed basically. They want a better lifestyle (more money). Perhaps if we stop subsidizing the training of surgeons and doubled down on residency salaries for primary care that would have an impact?

For those that don’t know. during residency and internship – which is 9 years and the University gets another 60,000 a year to train you. Who pays for that? CMS (medicare and medicaid) pays for your training to the tune of nearly $900,000 in interest free tax payer dollars. If you had to take a loan out for this part of your training it would be $4780 a month for 30 years at 5%. That is why we expect docs to be paid less to treat medicare and medicaid patients – to repay the cost of their US govt paid for training.

That is why you are expected to treat low income people for the rest of your career – to pay back the loan that got you trained..

Guest
MD as HELL
Mar 9, 2012

“There are plenty of highly qualified people who would be happy to be a doctor for that amount for life. ”

Mark, there are no nurses that are happy with that amount for life.

Liability premiums alone are higher than these salary figures.

No on is going to train for medicine for this income. The real investment cost must include the lost opportunity cost. In fact the physician never catches up with the plumberwho started at 20 years old.

Spedialist do not think they have a “right” to anything. They also do not have an obligation to work for free.

If medical education costs $900,000 per doc then it is time for the likes of you to ask why education has become rediculously expensive.

BTW, that monthly payment is less than the nephrologist’s monthly fuel bill for his jet.

Guest
Mar 26, 2012

Wow. Some doctor hate here.

I work 80 hours a week for that 40k. How many other people would take a job that requires 500k in medical school and college debt, requires advanced degrees, highly skilled labor, high risk of injury (we actually have very high disability rates in medicine not to mention operating in Baltimore has exciting needle-stick risks), and then not expect some compensation?

Further, if it really is just greed, why didn’t I become a lawyer or an MBA? 3 years of training and then higher salaries from the outset. Instead I’ve got 4 years of MD and 9 years of training with 80 hour weeks at 40-50k. After that I have a lifetime of call to look forward to. My preferred specialty, trauma, would require me to probably be in house taking call every 3rd night. The average physician works over 50 hours a week and surgeons often work over 60.

There are serious opportunity costs we take to be physicians. One is delay of professional salary for years after we graduate. Also, we are very highly motivated, hard working, and intelligent people. Admission to medical school is very competitive and some of the best college grads go to it and it isn’t for money because there are many many faster ways to wealth than medicine.

So tell me Mark, how many people are going to follow my pathway to becoming a trained general surgeon, get saddled with debt, doing 4 of college, 4 of medschool (give me another 5 for my PhD) doing 7 years of GS residency followed by 2 of fellowship, be one of the most trained, most specialized professionals in the world, still working 60-70 hours a week with in house call, performing operations at any time of day or night and then get paid the same as a social worker? Who exactly will do that? No one.

Guest
Mar 8, 2012

A lot of great ideas so far.

Nate Ogden and others, what methods can you suggest for stopping providers from charging anything they want?

I have been mulling over ways to do this for quite a while, but I do not feel I have the answer.

One method might be a Medical Bill Review Board, which would have the power to reduce or nullify any bill which it considers unconscionable.

But I am not sure under what kind of law this could be established.

I do know it is very important to have a legal climate where medical bills can be challenged.

Maybe we could import from Canada a ban on balance billing over 10-20% of what an insurer will pay.
(for the uninsured, the Medicare fee schedule would be the baseline.)

I welcome any practical suggestions,

Thanks,

Bob Hertz
Director, The Health Care Crusade

Guest
Mar 8, 2012

Good luck with that. As you know billing is not only all over the map but subject to all kinds of abuse.

The problem derives from a divided revenue stream with all the sources being moving targets for providers. Co-pays by the patient are subject to caps after a certain limit and the arithmetic gets tangled when a co-pay is to be reimbursed. Insurance companies are prone to cite “usual and customary charges” when refusing to pay bills. When multiple policies and/or Medicare/Medicaid overlap the “approved” reimbursement is subject to shift, typically to the disappointment of the provider. And get this — if the patient offers to pay cash the bill may be cut in half before he leaves the property.

It would be different if providers actually billed according to costs rather than rates, but that would not conform to a byzantine coding system that makes arcane distinctions having more to do with — I dunno — opinions than actual expenses.

It looks like to me that medical billing is often a case of throwing a bunch of shit against the wall to see how much will stick.

Guest
Nate Ogden
Mar 8, 2012

“what methods can you suggest for stopping providers from charging anything they want?”

Attorneys, many of them in expensive suits. Another great example of why we should not throw employers out of the system.

Not sure of the exact legal terms but a patient in most cases cannot consent to a binding contract. They are usually under duress, they are not provided a fair estimate of the cost they are agreeing to, and the provider accepts assignment of benefits as compensation and thus cannot balance bill. So the employer, same one JD wants to throw out, pays the bill based on cost plus. Hospital balance bills the individual the employer has their attorney take over the case. Throw in some state consumer protection laws as it relates to usury charges and it’s a very successful tactic.

Providers aren’t very excited about going into court to defend their billing pratices. The biggest problem is members crying to HR that the hospital is going to garnish their paycheck and take their kids away as payment. The biggest tool the hospitals have is fear their attornyes and debt collectors inflict. JD you think 300 million individuals can stand up to that alone? On the other hand a pissed off employer sick of seeing the hospital bill 5 times Medicare has the resources to do something about it.

Not always so simple.

When peopel ask why the cost curve has turned down its because employers have hit their limit. We spend twice any one else on healthcare because we had the money to piss away. We had the biggest TV, biggest, houses, biggest cars, and the biggest health bills. Were F’n Americans we like to spend big. Now that we don’t have the money we will buy smaller cars, buy smaller homes or rent and spend less on healthcare. Employers are at the front of that charge.

Guest
MD as HELL
Mar 9, 2012

But I am not sure under what kind of law this could be established.

That would be an unconstitutional law, Bob

The way to challenge medical bills is to go to a different doctor and do not incur high bills. Most healthcare is discretionary and elective. There is plenty of time for the patient to shop. They are just programmed to remain ill-informed.

Did you ever hear of Angie’s List?

Who needs a stupid totalitarian board, except a totalitarian?

Guest
Mar 26, 2012

Inaccurate. Angie’s list doesn’t aggregate costs of care. In fact, physicians are not typically allowed to even discuss how much they charge with other doctors. There is no way to effectively comparison shop in medicine.

Guest
Nate Ogden
Mar 27, 2012

not true at all, not even close. HeathEReports from IF Technology, we use it and it works great. Aetna has a similar tool as does Anthem. There is a new one I just started checking out we might use called ClearCostHealth.

Outdated opinions on this one.

Guest
Nate Ogden
Mar 10, 2012

Non Emergency out patient MRI at a hospital runs 2400. Free Standing Imaging Center $600. Southern Ohio getting your tonsils out at one hospital $2200 another hospital $4800. Out Patient Surgery even cheaper. It is a huge problem.

Getting employees to choose cost effective providers is one of the biggest projects right now in private insurance. Something employers are much more effective at then insurance companies.

Guest
Barry Carol
Mar 8, 2012

Sandra_R –

The purpose of tiered networks is to steer patients toward the most cost-effective high quality providers, and, in doing so, create some countervailing power against the hospitals and large physician groups that command well above average reimbursement rates because of their local or regional market power, not the quality of the care they provide. In a tiered network, the insured member can go to a higher cost provider but will pay a higher co-pay or coinsurance amount for the privilege. In a narrow network, the high cost providers will be out of network and the insured may have to pay the entire cost if he or she chooses to go to one of those hospitals or doctors anyway. Many Medicare Advantage plans work this way. There is no theoretical limit on the number of providers that can be in the preferred tier. They just have to be able to meet the insurers’ cost and quality standards.

Right now, it is usually impossible to find out exactly what hospitals and doctors are reimbursed by insurers for various services, tests and procedures. That makes it impossible to individuals to identify who the least expensive providers are and meaningful quality metrics are not generally available to the public either. If good, user friendly price and quality transparency tools were available to both patients and referring doctors, it would be much easier to price medical care that needs to be scheduled well in advance before services are rendered. Care that must be delivered under emergency conditions is in a different category altogether. Personally, I think any healthcare service, test or procedure that Medicare pays $500 or more for probably isn’t worth more than 125% of the Medicare allowance if provided to a commercially insured or an uninsured patient. Bills much above that are probably unreasonable in my opinion. Medicaid generally pays significantly less than Medicare and hospitals will tell you those reimbursements are well below their actual cost to provide the care.

Guest
Mar 9, 2012

Thanks – that’s one of the ways I’ve seen it implemented, but it doesn’t seem sustainable if everyone’s in the same tier. In other words, it’s logical to me that all providers would attempt to get into the tier where the volume of patients are going, but that would shift with time to drive down the price. I’ve also seen it tied to quality measures, where it’s not entirely price driven but also requires at least reporting some quality results – maybe that’s not always the case.

My question – is there a threshhold for all services in the tier? In other words, does it dictate prices for all types of surgeries, ambulatory care visits, specialists, labs, imaging, etc.? Or is it based on a narrower basket of representative services without scrutiny of those outside that basket? I’m just wondering how it works in real life and if it’s really sustainable or another gimmick that won’t really reduce healthcare costs.

Guest
Mar 9, 2012

Thanks to Nate and to Barry.

I have had the intuition for 20 years that the liability of patients was on very shaky grounds. Hospital Patients who are half-comatose in some cases and terrified in most cases are treated legally as though they just bought a plasma screen TV after reading Consumer Reports.

The motto for the future might be “No Liability without full price disclosure.”

Since price comparison is ludicrous for the 15 or 20 per cent of health care that is a true emergency, those areas could be subject to price ceilings immediately. An out of network doctor could not expect to drop in at an emergency room and send an $8000 bill for an hour’s work.

There have been about 6 or 7 successful class action suits on behalf of overcharged uninsured patients. We probably need a flood of such lawsuits as Nate suggests.

I wonder though, do we need an American President who is is as crazy as a Hugo Chavez to stand behind a legal offensive that will hit an awful lot of medical millionaires very hard?

Guest
Nate Ogden
Mar 9, 2012

My concern with the Chaves route is they don’t stop there.

Until someone comes up with a better idea we need to let employers fight the fight. They are big enough to take on providers, have the vested interest., and are willing.

In exchange we need to stop tieing one hand behind their back and making them the demons. Stop penalizing and fineing them for trying to insure their employees and families.

We also need to get our priorities straight. Fighting over birth control and rather $5000 is an acceptable deductible compared to $2000 while we have 50 million uninsured is just stupid. Repeal the last 10-15 years of terrible legislation, let employers go to war with the provides and when we are back down to 5-10 million uninsured we can tinker with the quality of coverage.

A great mandated policy with a $2000 deductible and coverage of birth control is worthless if no one can afford the policy.

Guest
Mar 9, 2012

See, how difficult was that? (in terms of substantive assertions, exclusive of the spelling).

Guest
Barry Carol
Mar 9, 2012

Sandra_R –

Prices are not dictated and the basket of services is not narrower. If we just focus on hospital based care for a moment, suppose every hospital in a region agrees to accept somewhere between 100% and 110% of Medicare rates for every service, test or procedure that it offers and they all have at least acceptable quality. If healthcare utilization doesn’t change, costs will still decline significantly because the more powerful hospitals charge and collect substantially more than 110% of Medicare today from commercial insurers and they bill the uninsured at astronomical rates.

The biggest reason why U.S. healthcare costs are higher than in other developed countries is because the prices we pay per service, test, procedure or drug are higher. Sometimes they’re much higher. Tiered networks, narrow networks, and price and quality transparency tools offer lots of potential to bring healthcare prices down especially for hospital based care.

Guest
Mar 10, 2012

Barry, I agree that many of your solutions would make a difference, but I don’t agree that this is the biggest difference in overall costs between the U.S. and Europe. There are many differences in how we address healthcare – just look at renal failure, for instance. First, we offer dialysis to many, many more people than they do in the U.K. Looking at the differences in outcomes between the 2 countries is comparing apples to oranges because they only offer it to people who are likely to do well, while we offer it to almost everyone. Second, they operate their dialysis centers differently and consider dialysis a scarce resource. They don’t require near as much specialist involvement; in fact, nurse practitioners may provide much of the direct care. I believe that comes from having a global budget, where scarce funds are divided up among the various specialty programs. Third, they favor organ transplantation as the gold standard and do as much as possible to increase the number of organs available. The organ transplant registry is run by govt agency and linked more closely to mechanisms to have more people agree to organ donation. In some European countries (in Belgium, I believe?) organ donation consent is assumed if someone hasn’t proactively declared otherwise. And if you look at the hospital buildings – I did not see anything like the extravagant buildings here in the U.S. I must admit healthcare financing, especially the financing of care provided by hospitals, is not at all transparent to me, so I don’t know where the funding comes from for all those new facilities. The hospitals I saw in Europe looked more like the hospitals at which I worked in the 1970’s – a far cry from what hospitals look like today.

Guest
Mar 10, 2012

I must admit healthcare financing, especially the financing of care provided by hospitals, is not at all transparent to me, so I don’t know where the funding comes from for all those new facilities.

It’s not transparent to anyone. But you can be certain that every dime, one way or another, comes from someone’s medical bill. It may be sliced and diced as delicately as a neurologist working on a brain tumor (or a banker packaging a mortgage-backed security) but every penny watering the health care garden is squeezed from a medical bill sent by a provider to a patient.

Guest
Mar 9, 2012

At least in theory, urban hospitals with a disproportionate share of poor patients should receive higher payments from Medicaid and Medicare. In addition to the geographic factor there is a “large urban” and a “disproportionate share hospital factor” which is defined in Wikipedia as “patient percentage […] equal to the sum of the percentage of Medicare inpatient days attributable to patients entitled to both Medicare Part A and Supplemental Security Income and the percentage of total inpatient days attributable to patients eligible for Medicaid […]”

Guest
Mar 10, 2012

Cutting the fee per service is only part of the struggle in cost control.

There are numerous examples (Maryland is one) where the entire state was put on a common reasonable fee schedule for inpatient care.

So, hospitals responded by increasing the number of admissions, and of course by steering more cases into wildly over-priced outpatient care.

George Halvorson’s first book called Strong Medicine is still a decent guide to this problem.

One step that is long overdue would be to mount legal challenges to ridiculous outpatient billings. Day surgery done in a hospital should be reimbursed at the same rate — say $2,000 — as if it were done in a free-standing clinic. A hospital that charged $5000 “for the operating room” should be laughed at, not paid in full.

I am not sure if this is still common or if it is a major impact on costs. Maybe someone can let me know.

Guest
Mar 10, 2012

It’s hard to know if this discussion is more about medicine, politics or insurance, but that seems to be the nature of public discourse these days. Thus far religion hasn’t reared it’s pious head but one mention of contraceptives and we can have a scene like a saloon fight in an old cowboy movie with all sides getting in a lick or two.

On a more serious note, I came across a link just now that has relevance to insurance (risk management, actually) which we all know has direct bearing on costs, the main subject of this discussion. No matter how we approach it, science will always have the last word.

http://blogs.discovermagazine.com/gnxp/2012/03/health-insurance-remains-and-will-remain-relevant/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+GeneExpressionBlog+%28Gene+Expression%29&utm_content=Google+Reader

Health insurance remains (and will remain) relevant

…Eventually, genomic testing will be a powerful predictor of future illness. And it raises the potential that young people will get themselves tested and then purchase insurance based off the result. So those with a clean genomic result might go for a cheap catastrophic plan, while those with a high risk of developing pricey illnesses will opt for more comprehensive insurance.

The result would be, in insurance terms, an “adverse-selection death spiral,” as the healthy opt out of expensive insurance, the sick opt into it, and premiums spin out of control….
[snip]
The idea that personal genomics might render insurance irrelevant makes some logical sense. The only problem is that it oversells the science of prediction in biology, and underestimates the role of randomness in disease outcomes….

The inquiries above about “tiered” plans puzzle together with the science mentioned inn this article. Genomes we know about can materially affect rates and those yet to be discovered may be (excuse a little medical joke) flies in the ointment. And even then actuaries are faced with the unpredictable impact of mutations, the genetic analogue to IEDs.

A few comments left at the link may also be of interest. The first one is by someone who must be one of my soul-mates.

The American system of employer-provided health insurance stems from General Motors’ attempt during WWII to evade government wage controls by offering health insurance as a fringe benefit. It’s a pretty stupid system.

Guest
Mar 11, 2012

“…Eventually, genomic testing will be a powerful predictor of future illness. And it raises the potential that young people will get themselves tested and then purchase insurance based off the result. ”
__

“Powerful Predictor” as defined by and validated by whom? To what end?

I used to work in subprime credit risk modeling. We could be “wrong” 99% of the time, as long as the True Positives 1% beat the stress-tested ROI hurdle and surpassed the CPA requirement (Cost Per Acquisition).

My bonus got bigger every year without exception.

“purchase insurance based off the result.”

There are presently NO uniform, forensically defensible QA standards for genetic assays (and how they might map to actuarial “risk”).

Yeah, I’m really comfortable that some Talk-Off script-reading Call Center naif will vet me for coverage (or not).

Guest
Mar 12, 2012

No argument from me. (The part you cited was part of the article that failed to be italicized cuz I messed up an HTML tag.)
I’m sure you are much better informed than I. This is one of those I-report-you-decide links.

Guest
Larry and Lincoln Weed
Mar 10, 2012

This post, the commentary and the original Washington Post article do not sufficiently address the interrelationship among pricing, quality and competition. High prices are a symptom of not only cost-shifting to pay for the uninsured but also out-of-control quality. Quality failures produce unnecessary, ineffective and harmful care, which is not only wasteful in itself but also sets in motion more medical activity with the same risks and costs. These problems exist in many countries, not just the U.S. Both cost and quality problems are symptoms of the same underlying cause: lack of a system of care to assure quality. Without that system, price comparisons are not meaningful, and price competition is inhibited.

In most economic contexts, the remedy for high prices is competition. Innovative sellers compete for buyers by offering the same quality for lower prices, or better quality for the same prices, as existing sellers. In health care this competitive dynamic is deformed. Whether the buyers are patients or third parties, they have no assurance of receiving the quality or value they bargain for — that is, they are without an effective system to assure acceptable quality for specific services. In particular, physician sellers have a legal monopoly, blocking effective competition or regulation that would otherwise restrain them from compromising their medical decisions or other services. The result is that sellers don’t compete on pricing, and buyers can’t bargain effectively for lower prices. When the buyers are patients, they fear that lower prices are associated with lower quality, which is less acceptable in health care than in other markets. (See the new AHRQ study, http://content.healthaffairs.org/content/31/3/560.abstract, showing that consumers tend to “equate high cost with high quality”). When the buyers are third parties, they may accept lower upfront prices, only to generate higher long-run outlays (defeating their own purpose and betraying the patients they represent). The outcome is the worst of both worlds — high prices and no assurance of correspondingly high quality, or low prices and no assurance of financial gain. The expected linkage between price and value is broken.

The situation becomes even worse when we examine the most basic medical service of all — the medical decisions that determine whether other medical services are needed in the first place. Buyers (both patients and third parties) are not well-positioned to judge those decisions. And the sellers who make those decisions (mainly physicians) have a legal monopoly to engage in decision making on the services they themselves will perform. The outcome is that physicians determine demand for their own services. In this environment, price controls tend to be ineffective. Without competition, physicians are free to increase their volume to compensate for lower prices (that is, they manipulate medical decision making to justify performing more services).

The only escape from this dilemma is to develop a new infrastructure for medical decision making and a new approach to regulating quality of medical services. With the right infrastructure, patients themselves (with their families and trusted advisors of their choosing) can work jointly with practitioners to make informed decisions (and the quality of those decisions depends on patient involvement). With the right approach to regulation, patients can be assured of high quality in performance of chosen services. In that environment, providers would compete on non-medical factors such as price, location, convenience, amenities, cultural compatibility and personal rapport. Patients could safely choose among providers based on such factors, because they would have assurance of high quality no matter whom they choose.

The key is to understand exactly what is meant by “a new infrastructure for medical decision making and a new approach to regulating quality of medical services.” For a detailed presentation, see our recently published book, entitled Medicine in Denial, http://www.createspace.com/3508751. A link to the book’s table of contents, overview and introduction is at http://xnet.kp.org/permanentejournal/sum09/Lawrence_Weed.html. For commentary on the book, see http://www.medpagetoday.com/Columns/30051. For discussion of fee-for-service payment, pricing and competition, see the authors’ blog post at http://thehealthcareblog.com/blog/2011/11/02/medicine-in-denial/. For background on the lead author, see http://www.economist.com/node/5269189?story_id=5269189.

Readers of the book will see that it combines market and regulatory approaches. Medical decision making would be largely unregulated, but only if the informational basis of decisions, and execution of decisions, are tightly regulated in specific ways. Feedback loops are built in, so that innovations in quality and efficiency would be continuously incorporated into regulatory standards, thus preserving and rewarding freedom to innovate.

Guest
Mar 10, 2012

I have been studying in line-by-line detail and writing about your book since I first became aware of it. Two recent posts, “Down in the Weeds'”

http://regionalextensioncenter.blogspot.com/2012/01/down-in-weeds.html

and my subsequent Feb 3rd 2012 “Back Down in the Weeds'” comprise but a start.

i would make this book required reading for pre-med 101.

Guest
Mar 26, 2012

I have written about these issues extensively in other posts.

Guest
Barry Carol
Mar 10, 2012

Sandra_R –

I don’t think it’s appropriate to look at the UK as a basis for comparison to the U.S. because the UK, as a society, decided long ago to spend a significantly lower percentage of its GDP on healthcare than not only the U.S. but other Western European countries including Germany, France, Switzerland, Netherlands and the Scandinavian countries. All the Western European countries I mentioned spend between 10% and 12% of GDP on healthcare as compared to roughly 8% or so in the UK. To hit that target, the UK is willing to use explicit rationing including refusing to pay for new drugs and other treatments that can’t pass NICE’s QALY metrics. By contrast, CMS is specifically precluded from taking cost into account in deciding what to pay for or not pay for.

The noted heath economist, Princeton University professor Dr. Uwe Reinhardt, published an article in Health Affairs back in 2003, I believe, titled “It’s The Prices Stupid.” Moreover, an interview in that same publication last year with Switzerland’s health czar noted that a huge reason that spending as a percentage of GDP is much higher in the U.S. than elsewhere is that we pay significantly more for everything including brand name drugs and hospital based care. Interestingly, generic drugs are actually cheaper in the U.S. but they only account for 10%-15% of the dollars spent on drugs even though they are about 70% of the prescription volume.

As for hospital financing, most of it does come from third party insurance payments for patient care but some of it also comes from Medicare payments for continuing medical education (CME) and disproportionate share (DSH) payments to hospitals that treat large numbers of uninsured and Medicaid patients. For some of the larger teaching hospitals, philanthropy pays for at least some of the new building. Hospitals including Mayo Clinic, Massachusetts General, Brigham and Women’s, NYU-Langone, and Columbia-Presbyterian among numerous others all have significant endowments. For teaching hospitals, the bulk of their spending on research is funded by NIH grants. So, while patient revenue is the biggest piece of the equation, it’s not the only piece.

Though I’ve never been in any European hospitals, I’ve read many times that they are, on average, considerably more spartan than U.S. hospitals. I’m quite certain that U.S. hospitals have more employees per licensed bed than hospitals in other countries and the doctors employed by those hospitals earn higher salaries on a purchasing power parity basis. While there is plenty of room to improve the U.S. system, including steering patients to more cost-effective providers, sensible tort reform and a better approach to end of life care, U.S. healthcare spending as a percentage of GDP will probably remain the highest in the world for a long time to come.

Guest
Mar 11, 2012

I’m not sure our model is sustainable, even with tweaking around the edges. I’ve heard health provider executives speak of the need to reduce costs by 30% over the next few years – that sounds like a major shift such as what happened in the 1970’s with hospital consolidations and substantial reductions in lengths of stay.

I don’t know what you mean by sensible tort reform – are you thinking of a no fault system such as they have in New Zealand? I would be in favor of that as that would bring an element of accountability and at least a bit of transparency to the system. I personally think that would serve patients well without adding significant costs to the system. In fact, I think that could save substantial amounts as there would be more incentive to make sure errors were minimized.