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


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.

Leave a Reply

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


Guest
Nov 7, 2014

Does it work to enlarge the proportions your manhood or superior ?
a charade? The stretcher is safe because comfortable to wear, and also good given that it must be put in position for
about 4 to 8 hours each for couple of months. Many men are interested in boosting the length and girth of
their penises. Most men would like to grow well-designed penis.

Guest
Nov 5, 2014

Look for guarantees for product – if a professional doesn’t fully guarantee their product chances are high it turn up useful
info. Men almost never think of this girth in addition to penis when it comes down to male
penis male swelling. I love the reality that I’m not using
some dangerous Proextender, I’ve heard the write-ups on serious problems.

Guest
Mar 26, 2012

Defensive medicine is pervasive. It’s not a matter of a shortage of time or just relationships with patients because you never know when a reelationship might sour, when a complication might happen to change the feeling the patient had about their care, or which physician might piss off the patient during the course of their care. When patients sue over a hospitalization, they sue everybody, from the attendings to the consults to the residents. Granted, based on your actions this typically gets whittled down, but you’d be crazy not to cover your a** all the time, because it doesn’t have to be you to sour the patient on their care. And then when the lawyers come, if they find any mistake, any omission, any exploitable flaw, you’re screwed. You’re on the docket too.

Guest
Nate Ogden
Mar 12, 2012

“In the first 11 months of 2011 health spending increased by 4.5%, compared to 3.9% for all of 2010.”

Maybe all those improvements weren’t the cause after all

Guest
Barry Carol
Mar 12, 2012

Sandra_R –

As I said previously, defensive medicine is virtually impossible to quantify precisely and there are other factors involved as well.

Let’s pretend I’m a doctor (I’m not) who works for a hospital and is paid a salary. I’m chatting with you after my workday about defensive medicine and how it affects my practice. I might say something like the following: I ordered several expensive imaging tests today that If I were treating a family member and paying the bill out of my own pocket, I wouldn’t have ordered them because I either don’t think they were medically necessary or would provide only marginally useful incremental information at best.

However, if I were sued by a patient because of a failure to diagnose a disease or condition, they will prove enormously useful in court. A family member, by contrast, is not going to sue me under any circumstances. At least, that’s my perception. At the same time, my patient wanted the test and if I didn’t order it, he wouldn’t think I was being “thorough” and might find another doctor and tell is friends that I’m not thorough in my practice of medicine. In addition, while I won’t benefit financially from ordering the tests, they will generate revenue for my hospital. Finally, I can claim that I am following the standard of care in my region which was developed by my medical specialty society. However, the standard of care itself takes the realities of our litigation system and tort environment into consideration in an effort to protect the society’s physician members from lawsuits as much as possible. So, in the end, when I ordered unnecessary tests, was I following the standard of care, practicing defensive medicine, trying to satisfy my patient’s expectations or make money for my hospital? It’s probably some combination of all of those factors.

Moreover, for emergency room doctors who, for the most part, are treating patients they don’t know and may be seeing for the first time, they are much more likely to err on the side of ordering too many tests rather than too few. The litigation environment has a lot to do with that.

So, as you can see, it’s a complicated subject that doesn’t lend itself to precise quantification but the docs will tell you that defensive medicine pervades the medical culture and it’s real. Obviously, there is malpractice and patients who are victims of it should be able to recover damages. It’s also well known, though, that a very small percentage of doctors account for a huge disproportionate share of malpractice and the medical system could do a far better job of disciplining them including revoking their licenses than it does today.

In the anesthesia situation, as I understand it, one of the big improvements they made was to standardize equipment across the industry so that each piece of equipment operated the same way no matter which brand was used. In the case of New Zealand, it’s a tiny country of only a few million people and I doubt that their experience with no fault dispute resolution could be replicated in the U.S. Our workmen’s compensation system, which is also no fault, is subject to more than its share of abuse.

Guest
Mar 12, 2012

I’m sure most of these commentaries do little to change perceptions but I appreciate your sharing. The scenario you described reminded me of a discussion in my healthcare economics class a few years ago. The professor, a healthcare economist not a healthcare professional, spoke of a conversation he had with a physician acquaintance. The physician relayed that “a patient walked into my office, and I could tell with 95% certainty that he had multiple sclerosis”. Our professor asked, “How much are we willing to pay to increase that level of cetainty?” What’s clear to me is that those statements (95% certainty…) are put out by physicians pretty regularly without much factual basis. I doubt that the particular physician recorded how many times he had seen a patient walk in with those same attributes (whatever they were) and recorded how often the patient ended up with M.S. and how often it was not correct, and then figured out the number of patients he needed to observe in order to reach the point that he could say with statistical confidence that he could tell “with 95% certainty” that that was the case. Stories between patients and healthcare providers end up being “he said/she said”, and both perspectives are probably not completely accurate. To get the other side of the story, I would suggest reading “epatients: how they can help us heal healthcare”, a paper available on the Society for Participatory Medicine website. You may not find it persuasive, but at least you should take a look at it and consider some patients’ perspectives as well. I’m all for finding a solution that works for both providers and patients – they’re both important and dependent on each other for satisfactory outcomes.

Guest
Mar 12, 2012

…doctors who follow evidence based guidelines where they exist.

We seem to be getting there one inch at a time. I don’t know how many times I have come across comments from doctors complaining that evidence-based guidelines are just another way that a panel of government bureaucrats is getting in their business, or socialized medicine is trying to get a foot in the door. A lot of doctors will have to be dragged kicking and screaming into the concept for the same very human reason that Dr. Gawande’s modest suggestion that checklists are a simple way to avert mistakes has yet to become a professional norm as routine as scrubbing before surgery. Your defensive medicine statistic of 15% of costs in many ways underscores the point.

This part of a prescient guest post at Health Beat three years ago impressed me so much I kept it bookmarked.

Many health care providers will be willing to implement these changes in their practices if the government provided them with cover by setting standards and explaining the standards to both providers and the public. This is partly because most providers really do want to provide the best possible care (and almost all believe they do,) and partly because establishing practice standards could protect against inappropriate lawsuits.

The most dramatic example of this can be seen in the history of anesthesiology. In the mid-70’s, anesthesiologists faced the highest malpractice insurance premiums of any specialty – often as high as $100,000 a year (and those are 1975 dollars, remember.) The Society of Anesthesiology, realizing that this was threatening the viability of many practices, created a national panel which developed a set of specific standards for anesthesia practice.

They then created a task force of lawyers and academic experts that offered its support to any practitioner who could document that they had followed the standards but was still being sued. Verdicts against anesthesiologists plunged ,and–since plaintiffs attorneys cannot afford to lose regularly –the number of lawsuits declined sharply Insurance premiums fell by 90%.

More importantly, complications of anesthesia and deaths from anesthesia also declined .The standards not only had the desired result of ending the malpractice crisis in anesthesia, but also made anesthetic management safer and more effective. This created an impressive win for the patients as well as the doctors.

This effect of practice standards on the malpractice climate could be helped along mightily if states passed legislation to codify the fact that documented proof of following best standards promulgated by federal agencies would serve as a clear and binding defense against charges of malpractice. This is not to say that patients do not deserve to be compensated when real malpractice occurs, but that the public also deserve protection from inappropriate and sometimes dangerous procedures, tests, and treatments ordered as “defensive” medicine to try to avoid lawsuits.

But in the end, let me stress, while the government needs to play an important role in creating and documenting standards of care, organizing the effort to improve care and providing “cover” for doctors, hospitals, and insurers, it is doctors who write the orders. They and they alone have the power to reform the quality and cost of our health care system from within.

http://www.healthbeatblog.com/2009/03/a-guest-post-what-the-doctor-ordered.html

Guest
Mar 12, 2012

John, I couldn’t agree more. In fact, some states did enact such legislation but constitutional questions arose because (I believe) in each instance, EBGs were only allowed to be used for defensive purposes and not for plaintiffs (patients). Last I saw, most of those laws are no longer in effect. I wrote a paper on this subject in 2004, and was amazed at how complex the issue was. I think that the anesthesia example you describe has another component – evaluation of the effectiveness of the guidelines in reducing poor outcomes and malpractice cases. Both are important – thanks for bringing that to light!

Guest
Barry Carol
Mar 12, 2012

Sandra_R –

While I’ve stated before that I think uncompensated care is overstated as an issue in driving healthcare costs, especially hospital costs, up, I believe defensive medicine is understated. While virtually impossible to quantify with any precision, if you talk to doctors, both PCP’s and specialists, you will find that it pervades the medical culture. My New York City based cardiologist / PCP estimates that about 15% of the cost of the medical decisions he makes are driven primarily by defensive medicine. Moreover, he tells me that it’s the same story for virtually every practice he knows of, at least in NYC. Doctors are especially fearful of so-called failure to diagnose lawsuits which is why imaging might be ordered for a patient who presents with a headache even though there is probably less than a 1 in 10,000 chance that it’s brain cancer.

My idea of sensible tort reform is not a no fault system. Instead, means robust safe harbor protection from failure to diagnose lawsuits for doctors who follow evidence based guidelines where they exist. It also means getting medical dispute resolution out of the hands of juries who can be easily swayed by a glib trial lawyer representing a sympathetic patient. I support health courts presided over by judges with specialized medical knowledge and the power to hire neutral experts to assess conflicting scientific claims. That would bring greater fairness, objectivity and consistency to the medical tort system.

Medicine is full of risk and uncertainty. Doctors can often tell a patient up front that, say, an operation has only a 50% or 60% chance of resolving the patient’s problem and there are risks of complications as well. If the patient has an unfortunate outcome, it doesn’t mean that there was malpractice or an event that should be compensated under a no fault system. Under our current unpredictable tort system, doctors feel a need to order more tests rather than fewer to cover themselves in case they are sued and, with a fee for service payment model, they also happen to make more money if they do more rather than less or at least make more money for their hospital if they’re employed by a hospital. Patients in other countries are far less litigious than we in the U.S. are.

Guest
Mar 12, 2012

Sorry to add one more thing. It is not correct that Americans are more litigious. Some systems put up more barriers, but talk to physicians in the U.K. and they complain about the same thing – “patients want to sue when anything goes wrong”. It’s more difficult to sue because they don’t allow contingency arrangements for bringing lawsuits in the U.K., I believe. In contrast, New Zealand uses a no fault system to reduce costs – both for patients and providers – and also allows a more open evaluation of what, if anything, went wrong and how to reduce the chances it will happen again. Like looking at the “black box” after an airplane crash, I would think, which makes a lot of sense to me.

Guest
Mar 12, 2012

Barry, I appreciate your point of view – I’ve heard it quite a bit over the years. I would appreciate, however, an accounting of the 15% of costs to see what they really entail. For such a precise number, are there numbers to back it up? Often what we perceive is not exactly the truth. This is an area that I agree has not had much scrutiny, but rather different groups putting out different perceptions of reality. You also should look at the cases that are brought and what happens to them. If we do want real “tort reform” in this country and go by caveat emptor for every product and service we purchase, I’d predict we’d come to regret that decision. But I really don’t think it’s wise to say that we should do that for healthcare only because we trust physicians and other qualified professionals to always take the best action. It puts too much incentive to “doing something” (not because of malice; because that’s what they do and that’s what they’re paid to do) without an adequate assessment of risk vs. benefit. It is extremely difficult for patients with a problem to go out and figure out the risks for themselves – they don’t as a rule have access to good information – and they often are not given adequate information on the consequences of the decision to go ahead. I think that’s the number one reason why so much futile care is given at the end of life – patients and families have not been given enough info on the “downside” of treatment throughout the course of their lives so assume that there’s a much greater “upside” compared to “downside” for treatments generally than there actually is. You’re probably right that it also involves patients understanding risk/benefit ratios much better – maybe that’s something that should be addressed in other ways than just in physicians’ offices.

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.

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 26, 2012

I have written about these issues extensively in other posts.

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 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
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 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
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

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 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.