OP-ED

What would actually work? Driving down the cost of health care

If competition actually drives the cost of health care up rather than down, what would bring lower costs?

What provisions in a “health reform act” would actually drop costs in health care? Let’s leave aside for the moment all the myriad other arguments – some might be seen as too much government intrusion, some would destroy the health plan industry, some would be cripplingly difficult for providers, and so on – and just focus on cost. Given the real structure of health care markets in the United States at this moment, what could be written into federal law and regulation that would actually reduce cost?me of these changes are massive, some would be invisible to those outside the industry, but all could be legislated or regulated, and all would “bend the curve” toward lower costs. Choose any you like, though some are “and” choices, others are “or” choices:

  1. Single payer: Eliminates insurance company overhead, increases medical loss ratio (the percentage of dollars put in returned as medical resources) to perhaps 95%, and gives the government (probably some rate-setting commission) the power to dictate prices and availability, like Medicare on steroids.
  2. “Robust” public option: All providers must take its payments as full payment, rates tied to Medicare rates (perhaps plus a percentage), Medicare rates decided by an independent rate-setting commission.
  3. Limiting medical loss ratios: Many European countries dictate that health plans must return 85% or 90% or 92.5% of the premium paid in as medical services paid out.  U.S. health plans, in contrast, compete on (and brag to Wall Street analysts about) how low their medical loss ratio is. Some are as low as 60%.

  • Negotiating drug prices: Allow the government to negotiate drug prices for life-saving drugs.
  • Malpractice reform: Our adversarial system of dealing with malpractice costs us, directly, only about one half of one percent of medical spending. But the extra tests and unnecessary procedures of “defensive medicine” cost an estimated additional 3% – $60 billion per year, an amount equal to most of the cost of extending coverage to all Americans. And still most victims of real malpractice are left without any help or compensation at all, most actual medical mistakes pass without comment, and most of the few really “bad” doctors out there are still able to practice medicine unhindered.
  • More docs, more clinicians: Increase the supply of medical service by expanding medical and nursing school enrollments, reducing barriers for foreign medical school graduates, reducing internship requirements, and allowing nurses and techs to perform more procedures.
  • Bundling: Many parts of health care could be “bundled” into coherent products – a replaced hip, an uncomplicated birth, a cornea transplant, diabetes management – from diagnosis to re-hab, counting all imaging, drugs, everything. Payers should pay for these as single payments, just as you don’t pay the auto body shop for each sheet of sandpaper or quart of paint, but for the whole job. This would drive providers to discover the most efficient way to do it.
  • Publishing outcomes: There are comparable measures of quality that do not penalize places that take more complex or difficult cases. Establish standards and put all the statistics on the Internet.
  • Publishing prices: You want a new hip? Here’s what it costs at each of these institutions, here is their clinical quality outcome rating, here is their customer satisfaction rating, right there on the Internet. This is true competition that would drive down prices and drive up quality.
  • Banning discounts: Counterintuitive? Perhaps. Any CFO of a health care organization would tell you that their “master charge list” is a phantom made up only for negotiating discounts, and the discounts are all over the map – so no one can tell you what the “real price” of any part of health care is. This means that competing on price at all is very difficult, if not impossible. “Common carrier” rules in communications and transportation dictate that the price is the price, and the little buyer pays the same as the big buyer. This would massively transfer risk to the providers to get their costs under control and get their prices right.
  • Giving a premium to integrated “accountable care organizations:” All the organizations consistently put up by reformers as good examples of giving the most and best health care for the dollar, such as Mayo, the Cleveland Clinic, Geisinger, Group Health of Puget Sound, Kaiser, and Health Partners of Minnesota, are structured differently from the rest of health care. The doctors are on salary, or share profits in the whole enterprise. Many of these organizations are “capitated:” they cover everything for a set monthly fee. There is no encouragement to do anything unnecessary, and every encouragement (since they are in competition) to do whatever actually works for better health. They do good, conservative medicine in a collaborative team-based style. We cannot mandate the growth of such organizations, but we could give an extra 5% or so to encourage their growth.
  • Increasing subsidies for digitization, tied to productivity improvements: There are huge inefficiencies in the actual practice of medicine. No one can improve on them until the people running health care can actually track what they are doing, in detail. In something as complex as health care, that means total digitization, like any other business.
  • Subsidizing automation: Many things in health care would be done much more efficiently by automation, from lab work and pharmaceutical distribution to tracking inventory. Today’s system does little to encourage such automation – instead,it actually supports the inefficiency.
  • Standardization and checklists: Many parts of health care have established pathways that are clinically proven and widely published in the medical literature, yet followed only at the clinician’s whim. These are not matters for the doctor’s judgment, these are matters like washing your hands between patients, fully draping a patient for a central line placement, getting clear verbal confirmation from everyone in the surgical suite that they agree on who the patient is and what the operation is for. Standard pathways, and simple feedback mechanisms like checklists to make sure they are followed, are still not common practice in health care. If regulations made them mandatory, following them would save billions of dollars in fighting infections and having to re-admit patients to the hospital with problems that could have been prevented.
  • Warranties: You define the job and put a price on it, now back that with a warranty. Today, if I have an operation, and get an infection from the operation, or it has to be done over, the provider actually gets paid for taking care of the problem. With a warranty, I (and my insurer) would pay nothing. This would drive the risk for quality back on the provider.
  • Though politically some might characterize some of these choices as “radical,” none is “radical” in the real world of health care. Each has been proven, in practice, in some part of the current market, even single payer (think Medicare and the Veterans Administration). Each is practical, not just theoretical. Each could be done with current technology if we decided to do them. Most could be done without any massive new bureaucracy, just from a tweak here and there in the rules, undoing rules that have been set for the convenience and profit of payers and providers, and setting them instead to force them to compete on actual value for the patient and for the nation.We could drive down the cost of health care while driving up quality and serving everyone. How much could it be driven down? The evidence (from other countries and from variations in our own market) says that we could do health care in the United States, with full choice and higher quality than today, for everyone, for half to two thirds of today’s cost.

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    AmbranNate OgdenDennisDan Smithhuile d argan Recent comment authors
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    Dan Smith
    Guest
    Dan Smith

    Full-blown competition in the healthcare field will only occur if service provider contracts between the doctors/hospitals and insurance companies are eliminated. These contracts limit access, quality, competition and raise prices. Also these contracts make it harder for new insurance providers to enter a state since these contracts are used to build the insurance companies’ service provider network. A new insurance company would lack the network and find it difficult to recruit local providers who are already fully booked by established insurance carriers. The key is to eliminate the service provider contracts and require the doctors and hospitals to accept patients… Read more »

    huile d argan
    Guest

    Hi,
    This is wonderful article.I get to know how whole process of cost assigning is working.You have provided some great stuff to lower the health care cost.

    Jon
    Guest
    Jon

    There are insurance companies out there – the non-profit ones, in particular, and the public-sector plans like Medicaid managed care companies – that actually strive to keep costs down. In the case of Medicaid managed care companies, it’s their responsibility to keep costs down because tax payers are the ones that fund their businesses. Take a look at this website – http://www.ourhealthcaresource.com. They are a Medicaid managed care company that claims to operate lean while promoting quality care and wellness. These are the companies that will shine in the new era of health care.

    HealthCare Reform
    Guest

    Either Obama is right and he can truly cut $500 billion of waste, fraud and abuse out the Medicare budget or Medicare dependent seniors must suffer when $500 billion is cut from muscle and bone because there really wasn’t that much fat.

    Health Plan Veteran
    Guest
    Health Plan Veteran

    With so much emotion and a wide range of “knowledge” (how much is truth vs urban legend?), one can readily see why we’re unlikely to see any truly radical health care reform legislation from Congress. Instead of fact finding and trying to establish some basic principles for reform, everyone is running around screaming about how one provision or another will plunge the US into a great morass. Well, for health care, we’re already on that track if we do nothing.

    R Quinn
    Guest

    The efforts at so-called health care reform are becoming a joke with it being increasingly apparent that the folks in Congress have no idea what they are doing and that their objective is simply to expand coverage and to the extent they can do to it through the federal government. The most recent example is an amemedment to the Senate Finance Committee bill that would require employers to offer vouchers so employees (likely the most healthy) could opt out into the cooperative and keep the cash they save.
    Here are more details on this nonsense.
    http://quinnscommentary.com/2009/09/30/more-muddied-waters-employer-voucher-program/

    healthcareDev
    Guest
    healthcareDev

    Nate, you’ve obviously done well in arranging to get paid by the word.

    Alexander Saip
    Guest

    Well, I have to admit that I should have placed “in theory” somewhere in my comment 🙂 In reality, those who vote, choose based on promises, which sometimes fail to materialize…

    Margalit Gur-Arie
    Guest
    Margalit Gur-Arie

    The majority only decides who gets elected (most of the time), but it does not really decide policy. The elected officials do that based on “other” considerations.
    If the majority were to decide, we would have a public insurance option.

    Alexander Saip
    Guest

    No doubt, in terms of the basic rights and freedoms minorities and individuals must be protected, but the majority decides on the policy by electing a President and Congress.

    MD as HELL
    Guest
    MD as HELL

    Mr. Saip,
    The Constitution was written to protect the individual from the majority.
    And you are correct, you did not chalenge my voicing my oppinion. That paragraph was directed at another post. Sorry for the misdirection.

    Christopher George
    Guest
    Christopher George

    The first thing one would do, if one were serious about reform would be to control costs, before expanding coverage. The so-called reform is essentially silent on cost control. Nothing is stopping you from wringing waste from medicare, and nothing was stopping you for the last 30 years. Also, I understand there is a lot of money to be saved by reducing the number of tonsilectomies performed by pediatricians (good luck). The second thing one would do is divorce medical insurance from employment. The so-called reform panders to union memebers and government employees by re-enforcing this idiotic linkage. What would… Read more »

    Alexander Saip
    Guest

    MD as HELL:
    Actually, I never discussed your personality or questioned your right to express your opinion, on this blog or elsewhere.
    “…I want every American to have a choice.”
    As Lenin once wrote, “…To live in a society and be free from that society is impossible.” Your choices are always restricted by the “social contract” in the form of the law, which, in a democracy, is supposed to reflect the views of the majority.

    MD as HELL
    Guest
    MD as HELL

    Mr. Saip, I clearly do not want to choose what is fright for every American. I clearly want the opposite; I want every American to have a choice. I clearly want a government that is limited and affordable. And what is so great about a “six figure income” when you are taxed out of 60% of it? (federal, state, FICA, Medicare) Your greed is power. Your greed is much more stealthy than a corporation. As for physicians in western Europe, you don’t know who did not go to medical school there because of the system there. The best and brightest… Read more »

    Alexander Saip
    Guest

    In response to MD as HELL: “…Why would anyone want to go to medical school to become enslaved in this nightmare?” I didn’t hear much about misery of enslaved physicians in Western Europe, and a have a few friends in Germany (one of them is American-born and educated), who practice medicine there, did you? If bright young people here choose medicine for a six-figure income, then we shouldn’t be surprised to learn about Doctors Hospital in McAllen, TX, or Dr Conrad Murray injecting Michael Jackson with propofol… “…I can sue the corporation for their failure under the terms of my… Read more »