The Path of Five Fallacies

Roger collierNo, it’s not one of those Chinese operas from the Chairman Mao years, but rather my reaction to a recent  report from the prestigious Commonwealth Fund.  “The Path to a High Performance US Health System,” and its accompanying technical documentation, forecast savings for a “comprehensive set of insurance, payment, and system reforms that could guarantee affordable coverage for all by 2012, improve health outcomes, and slow health spending growth by $3 trillion by 2020.”

On a positive note, both the report and the technical documentation are well worth reading.  The report assembles in a single “system” most of the proposals currently being talked about by HHS Secretary-nominee Kathleen Sebelius and senior staff in the White House Office of Health Reform, while the technical documentation provides a comprehensive analysis of costs and savings that might result from these changes.

So, should we have confidence that the proposed “system” can get us close to universal coverage and make a $3 trillion dent in health care costs? Unfortunately not.

While the Commonwealth Fund report contains many sensible ideas, the conclusions are undermined by five major fallacies.

Fallacy Number One:  Small businesses will accept a “play-or-pay” proposal that forces them to pay a minimum of seven percent of payroll for health care.

There are practical reasons why play-or-pay won’t be effective, but the biggest obstacle is political feasibility. While a seven-percent levy might seem modest to businesses that currently pay much more for coverage, it’s inconceivable that such a proposal in the middle of a recession would produce other than fierce opposition from NFIB and its allies. Unless health care reform is incorporated in a budget reconciliation bill—unlikely since it would upend the Senate tradition of compromise—it will require sixty yea votes, something that small businesses can pretty much guarantee to prevent. (The Commonwealth Fund seems to have forgotten that business lobbyists helped defeat California’s reform bill that called for just a four percent levy.)

Fallacy Number Two:  The insurance industry will allow the creation of a “public plan” to compete with their own offerings—a plan that the Commonwealth Fund estimates will drive provider payments down by as much as thirty percent compared to traditional FFS insurance, and attract up to two-thirds of the individual and group markets.

Oh, s-u-r-e! Given that for most insurers this is a bigger threat even than the 1993 Clinton bill (where at least insurers had the possibility of turning themselves into managed competition entities), the reality is that the public plan proposal is even less likely to succeed than play-or-pay. The assumption that it would be the only FFS plan sold through the proposed insurance exchange is especially likely to leave AHIP leaders foaming at the mouth. Providers are unlikely to be too eager to go along with a proposal that slashes payment rates by thirty percent, either. (And, as I’ve noted previously it’s not that certain that public programs are superior to private coverage.)

Fallacy Number Three:  Government spending on IT of $120 billion over ten years will yield savings of almost $200 billion.

A huge coup for IT lobbyists! There are certainly strong arguments for electronic medical records (no one wants to be on the receiving end of one of those nasty drug-drug interactions), but the forecast savings are unlikely to be anything but illusory. Integrated health care systems like Kaiser may be able to achieve savings (hopefully, given the $4 billion that Kaiser has sunk into its own IT project), but the great majority of US providers have neither the same level of integration nor the same incentives. A more realistic view is found in last year’s Congressional Budget Office report on health care issues, “By itself, the adoption of more health IT offers many benefits, but it is generally not sufficient to produce substantial cost savings because the incentives for many providers to use that technology to control costs is not strong.” (By the way, did anyone in the White House think to ask their own Budget Director, Peter Orszag, who oversaw the preparation of the CBO report, before deciding to spend $19 billion on health care IT?)

Fallacy Number Four:  Establishment of a “Center for Comparative Effectiveness and Health Care Decision-Making” will cut expenditures by more than $600 billion over the next decade.

H-m-m-m. While it’s hard to argue against something that seems so sensible (we’d all prefer our docs to know what works best), the savings projection seems wildly optimistic. The $600 billion estimate assumes that more intrusive (but unfunded) public program claims processing procedures will dramatically change provider behavior. We all know from the Dartmouth Atlas reports that there’s lots of room for improvement, but without the control over resources that the UK’s NICE enjoys, it’s hard to believe that those high-cost providers in Miami (and elsewhere) will go along with slashing their incomes (see Fallacy Number Five). And as the CBO report notes: “it would probably take several years before new research on comparative effectiveness could reduce health spending substantially.”

Fallacy Number Five (perhaps the biggest fallacy of all): Providers and patients will behave the way the Commonwealth Fund (and most of the rest of us) would like them to.

Unfortunately, this piece of wishful thinking is at odds with the incentives in our current supply-driven health care system. Outside of entities like Geisinger, Kaiser, and the Mayo Clinic, improvements in provider efficiency are likely to cut incomes, not increase them. It’s no coincidence that areas with the greatest physician and hospital densities have the highest health care costs. In a health care version of Parkinson’s Law (“Work expands so as to fill the time available for its completion”), availability of resources—whether high-tech imaging equipment or physician time—means that the resources will be utilized in patient care. Unless we can change the incentives—or control the introduction or distribution of new resources—we will never solve the health care cost problem.

Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies.

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26 replies »

  1. The government interference in healthcare will not solve problems long term. Just like Social Security and Medicare this programs will suffer from not having enough financial resources, funded through tax dollars, to support the program and the inevitable cuts will come. A better solution is to allow faith-based and community-based health clinics to care for their own citizens within the community. Government grant funding could help these ministries and non-profits but these clinics are most effective when they are supported with local funds by individual contributors and local foundation grants.
    In my work with Here-4-You Christian Grant Consulting I meet ministries striving to provide healthcare services, healthcare sharing programs, free clinics, pregnancy centers, and other health related organizations. It is predicted that these programs will be harmed or even shut down by “healthcare reform.” The Christian and faith-based organizations are most concerned as to how new regulations may interfere with their missions.

  2. rbar,
    The diagnostic overkill is affordable for everyone. Now that the California supreme court has ruled that plans do not have to pay out of network payors anymore than they pay in-network payors, people are free to not pay at all since they are in no network and have never agreed to pay anyone. Why would anyone agree to be taxed to death to pay for something they can steal now fair and square?
    Millions of people consume healthcare services simply because it costs them nothing. Have you seen a scooter commercial or a lift chair commercial lately? “No cost to you.”

  3. In general, the “really smart” people in Academic Medicine like to teach because they don’t like the long relentless hours of medical practice. They are there to avoid practicing medicine. ( Let the residents do the work! )They may not make the income that the presumably not so “really smart” doctors in private medicine make, but they do much less work per dollar they are paid. If Partners did our entire nation”s healthcare our collective bill would probably double.

  4. I think you are very wrong, jrossi.
    I encounter very many academic and non-academic physicians. The very high earners very often (not always) excel in social networking, ruthless efficiency (often neglecting details) and specialization on procedures with high reimbursement. Some of them are shoddy clinicians.
    Most (not all) really smart and excellent people are in academics where they earn less (but usually well from 150 K up), because they enjoy teaching, research and intellectual stimulation (not doing the umptieth cardiac cath for the day).
    JRossi, show me the professions in which you are basically guaranteed to take home 150 K and up right after graduation … even during these times.

  5. Ezra Klein’s comment posted above by Peter is key. One of the major factors in high doctor salaries is the fact that medicine competes with other fields for the services of the energetic, talented people who go into medicine. These people are just not going to do primary care for 100k a year because they could do much better doing something else. You can’t induce these people to become general surgeons for 200k a year. If we want to continue to attract smart young Americans to medicine, we have to pay them one hell of a lot of money. If we don’t want Americans or smart people, we might be able to pay less. An interesting question is whether this would cause access and/or quality problems in health care.

  6. The problems in healthcare are simply a manifestation of problems in society as a whole. Greed, selfishness, and myopic thinking are the core problems, not MRI machines, administrative waste, etc. Those are just symptoms. Until we decide as a country that we want to get back on track, we will continue down this unfortunate path. Freedom and diversity, two things that make this country great, will also be our downfall if we don’t step back and look at ourselves.
    I don’t like having a doomsday attitude, but I’ve engaged in the same conversations about medical homes, HIT, shifting reimbursement from specialists to PCPs etc that all of you have. We can talk about those things until the cows come home, but they are all workarounds in the grand scheme of things. My parents seemed to have no trouble paying for healthcare for a family of nine, 100% out of pocket, on a machinist’s income. Our family doc was also our pediatrician, OB/GYN, endocrinologist. etc. and he drove a Chevy. I never heard of an HMO or a PET scan back then.

  7. George,
    You hit the nail on the head. Doctors must be at the heart of the system. Insurance companies should not be the decision makers.
    The core problem of our healthcare today is….millions of non-medical people are in the system. By keeping all of them in the system, we simply can not achieve any meaningful reform.

  8. Peter,
    The salaried ones are not making what the dozens of “mid-level” hospital or insurance company vice presidents are making. This is nothing like the top eschlon of hospital, legal, drug device, workers are getting. (You really have to love those organisational charts!) The surgeons in private practice have overhead in their offices where they see the patients post-operatively.
    If you were to look at healthcare, or the economy at large, I don’t think you would pick them as the most overpaid considering the training, education, and long hours specialists work… Doctors are only a small slice of the many people earning high salaries in medicine. If we need to limit salaries in healthcare, lets do it for everybody in healthcare…not just the doctors that actually provide the medical care which is supposed to be at the heart of the system.
    Just wait, as specialists get paid the hourly wage of plumbers we can watch together what happends to healthcare. We will evolve into a system where the crisis social worker is there in the ER, and the pneumovax vaccine is given, but there is no surgeon available.

  9. Christopher, what about surgeons and specialists (highest paid) practising in hospitals, do they (fairly) pay for overhead or is it absorbed into the overall hospital system? I do agree that the more lawyers we have it seems the higher the fees and the less we have of affordable access. I would support limiting lawyers before I would support limiting docs.

  10. Peter,
    Generally speaking, physician payments are often not corrected for expenses which makes them seem high. Physician overhead in a private office is often over 50%.
    This anomaly leads do-gooders to think that salaried clinic operations where overhead is much higher and patients are much healthier is more “cost-effective”. In our town, once you are actually sick you leave the University associated clinic and find a doctor that will actually help you. Once private practice is obliterated, we will discover this.
    Why isn’t this (modest)salary model a good one for lawyers? We have over half the lawyers in the world, and pay the highest legal bills in the world? This would free up some money for our nation’s huge medical bill

  11. The point of my comment is that lots and lots and lots of people are making a lot more money from medicine than doctors, so if we are going to reduce doctors pay, lets also reduce all the other people profiteering from medicine as well. All I ever hear about is cut the doctor’s pay.
    If the hospital president or the insurance company president or the trial lawyer or drug company exectutive’s pay was tied to the doctor’s pay there would be a strong incentive to increase the doctor’s pay.

  12. MD makes a good point, we compete world wide for medical staff. I can see paying specialists less in order to pay PCPs more but when playing with incomes you have to be very careful. I would hope that docs go into medicine for more than the pay but balancing pay with skill and workload is very critical. Here is a story about Indian doctors that we need to be mindfull of:
    I do think we can attract more less wealthy people into medicine by paying their schooling in return for flexibility as to where they practice.
    Here is a comment on docs pay by Ezra Klien:
    And another for consideration which shows we have room to reduce docs salaries and still privide good incomes:

  13. Who do you think is going to practice medicine in your world, Mr. George? Not only will US medical schools have vacancies, but foreign medical graduates will stay home. The cost of care will go down, however, since only the exceptionally desperate will submit to treatment for anything. You will have universal coverage: Everyone will run for cover.

  14. If we limited all players in medicine to a low multiple of a primary care income, all of the other problems would solve themselves. Private insurance would disappear. Insurance executives don’t work those twenty hour work weeks to be paid like a slave. Hospitals would shed employees. Even without high priced executives, hospitals would function just fine. Trial Lawyers would go back to car accidents and suing Netflix. The hospital lawyer would become a high turnover sort of clerkship for a year or two until the new graduate could find a real job. Sixty Minutes would be unable to find any correspondents for medical segments willing to work for such a paltry sum. Device makers and drug companies would dismantle. Drug prices would fall precipitously.
    Problem solved.

  15. MD as HELL,
    ‘No profit’ refers to the insurers’ profit and not doctors’; in fact, doctors will make more profits/money as ‘larger pool’ of people/patients will go to the doctors. Admin cost will be very low compared to what private insurance spend as public plan doesn’t have to 1) have 100s of provider networks and rates, 2) offer millions of plan options and choices…means simplified process.
    Well, if you still prefer private insurance, go for it. I am not suggesting that private insurance should not exist.

  16. I believe Roger Collier is correct. His arguments can be summed up simply as the reform proposals lack all the appropriate incentives necessary to succeed. Hospitals do not have an incentive to become more efficient when doing so means performing fewer unnecessary MRI scans, etc. Neither do doctors have an incentive to follow comparative effectiveness protocols when doing so reduces lucrative procedures of limited value. Health IT would be great if providers were competing for patients based on price – of course they are not. Neither am I convinced patients could be encouraged to demand fewer services of dubious value when they lack a financial incentive to do so.
    Two additional myths, not specifically mention by Collier, is that prevention and chronic disease management would save boatloads of money. Not that these are not great ideas. But, similar to comparative effectiveness and health IT, the phantom savings from prevention and chronic disease management cannot be counted on to fund universal coverage.

  17. I agree with your post.
    1. High areas of over-utilization in Heart Disease, back problems, and end of life care are unaddressed. These are politically difficult to change areas. Leave those alone, and there is really not enough left to cut to make a meaningful difference.
    2. With no protection from tort liability, guidelines are just silly. Most of the things that need to be cut are already well known to be marginally effective. We continue to do them because everyone else does. There is no answer to the question “why didn’t you do x, everyone else around here does?” that offers reliable legal protection. This means the rational non-utilizer is in legal peril. Look at the Dartmouth map again, and superimose a trial lawyer income map, and I bet you will have one-to-one correspondence for both medical and legal hotspots.
    3. Overhead is not just in physician offices, insurance companies, but especially hospitals. Like the pentagon in the sixties hospitals billed at cost plus. This allowed a truly spectacular growth in non-clinical staff in hospitals. Hospitals are the main sink of waste in our system, but are way down the hit list for “reformers”. They run a hotel where doctors work, and pay themselves like silicone valley entrapreneurs.
    4. If we are going to limit doctor’s pay, lets limit everyone that works in a medically related field to the same degree (on an hourly basis). It might give the other profiteers in medicine an incentive to raise primary care income, and lower their hours.

  18. Thank you Mr Collier. But sorry I can be optimistic when such proposals are mentionned. On the other hand, can it be worse?…

  19. Unless a public plan has equal and stable funding it will fail. Public schools exist along side private schools because the funding for public schools does not suffer (any more than it is) because of private schools.
    MD as Hell, providers will make a profit in a public plan, just not as big. Using government funding could also shift resources to primary care and other health sectors deemed higher need.
    “show me a government program that can run anything at low cost.”
    Seems most other industrialized nations are doing it – at about 1/2 the cost.

  20. I so pleased to get a concurrence on the fact that $20billion in IT is largely a waste. For over 10 years, the companies have spent in creating EHR etc HIT products and spent billions and they have nothing that is robust. So now they want the government money to continue with their follies.
    There are benefits of EHR but not $200 billion dollars and that also only if the product is good and implemnetation is successful.
    I heard one of the interview here….It was funny to hear the interviewee say ” Oh we get negative press about what does not work…what does one have to say those successful uses”
    It is silly logic. A product should be such that it is not affected by the noises of implementers and site. Those success stories are not really stellar. When you have spend a million dollar, you can rarely stand and say how fool of me. The first thing program directors do is to stand up infront of CEO and say everything is great….and so many more things.
    So every success story is not a success story. Now can it be changed?
    Of course. Focus on establishing a good product requirement and specifications based on current need which includes techinical and perceived, develop the product robust accounting for all the noises that may appear in day to day operations, and follow a good product develpment process.
    If anyone need to discuss in detail, I can spend sometime on it.

  21. Can’t argue with most of your points. I do have to highlight one thing though – you say “Outside of entities like Geisinger, Kaiser, and the Mayo Clinic, improvements in provider efficiency are likely to cut incomes, not increase them.”
    Why do we dismiss these models as if they are anomalies? Why do we ignore what works? What we need is more pressure for the providers to move into models that we know work. Why is ok for the provider system to operate in fragmented, inefficient manner? Everyone wants to focus on insurance reform and we give the providers a pass – when we know that there are delivery models that can achieve real improvement in both cost and quality.

  22. Mr. Collier makes alot of sense.
    Keybrd does not.
    1. No profit…then why go into the business? I am a for profit entity. Do you think I am going to work nights and weekends taking care of patients and make less than now?
    2. Larger pool…pool of what? Not money; that’s what “reform” is all about. Not enough money to deliver the gobernment-promised coverage.
    3. No lobbying…like there is no lobbying for the defense budget.
    4. Low admin costs…show me a government program that can run anything at low cost. They can’t, which is why they often contract admin out to private companies, who do it cheaper and make a profit. The public plan we have uses private intermediaries for admin. They are for profit companies.
    Health insurers are not fighting to prevent a public plan. We have private schools and public schools. In that area, the public schools fight tooth and nail to prevent funds being diverted to alternatives that are private. I now finance public education with taxes but chose to send my children to private school at my expense. My children get no government funding. Private means free. Private means choice.
    We need tort reform to cut costs. Most expensive tests are negative, as the doc espected but had to have to have a leg to stand on. Give us tort reform and costs will go down. Yes, that establishes the doctor as the decider in life and death situations. But emotional families are not good deciders in the first place.
    Behavior of people.. is exactly why the governemt is in the mess it is in.

  23. I would be curious to learn what plan Mr. Collier would suggest.
    If current trends continue, there might be a counterreaction to the current diagnostic and therapeutic overkill that is already unaffordable to many. In 2015, maybe, a large group like Kaiser will decide that they only will do what medically makes sense, telling their physicians and patients that they have to play by (already known but rarely followed) simple rules of medical effectiveness … and provide coverage for a quarter less than any other insurance.

  24. A public plan option will definitely work. This is exactly the reason why health insurers are fighting against.
    We must have a public plan option. The cost for such a plan will be less by at least 25% because of 1) larger pool, 2) no marketing/sales cost, 3) no lobbying cost, 4) low admin cost, 5) no profit, etc…