The Way Out of the Wilderness

In 1932, the Committee on the Cost of Medical Care identified rising medical costs as a threat to the financial security of millions of Americans. In a series of studies that created the field of health services research, the Committee recommended several strategies for cost containment that reads like a blueprint for today’s cost containment efforts: prevention, price controls, capitation, elimination of unnecessary care, and integration. If it sounds like a précis of my previous two blogs – cut prices and cut quantities – it should. We have known for a long time that those are the only ways to cut spending. And yet here we are, 80 years later, facing a spending crisis that threatens to take down the entire economy.

In my lifetime, we have been subjected to a steady drumbeat of rising medical costs. There have been respites – for a couple of years after Medicare introduced DRGs and for about five years in the 1990s during the heyday of HMOs. While DRGs and HMOs shifted costs down, they did not seem to reverse underlying growth trends, although HMOs did not thrive for long enough to be certain.

Not for lack of trying have medical costs continued to increase. We promote prevention, regulate prices, capitate providers, and review utilization to eliminate wasteful spending. We have seen horizontal integration that led to market power and higher costs, and vertical integration that more often than not created unmanageable bureaucracies. Most of today’s proposals for cost containment can be encapsulated by two words: “Try harder.” The Affordable Care Act gives us free preventive care, stricter price controls, ACOs, and the Comparative Effectiveness Institute. We need radical change but all we get is creeping incrementalism. I will take creeping incrementalism over the do-nothing approach of the previous decade, if only because we could use another respite. But the ACA is no permanent fix.

The problem is that no one in the system has an incentive to embrace radical change. Obama and Romney are arguing about who will do less to change Medicare. Dominant health insurers have been among the least innovative companies imaginable. (Is it a coincidence that exceptions can be found in states like California and Minnesota, where the health insurance market remains reasonably competitive?) Physicians and hospitals have been in positions of power for a century or longer, an extraordinary length of time when compared with dominant firms in other industries. (I admit that universities have enjoyed similar longevity, but look at our rising tuitions.) Patients still put their physicians on pedestals, ignorant of the data on medical errors, practice variations, demand inducement, and all of the other ways that our providers fritter away our healthcare dollars. And why should patients care, with someone else paying the bills and tax subsidies helping to pay for expensive insurance plans?

We won’t fix this system until people with power have much more skin in the game. The astonishing response to the announcement of Romney’s selection of Paul Ryan tells me that we still have some way to go before we see a game changing redesign of Medicare. Providers will not propose any radical change from a system that has served them so well for so long. This leaves things up to us – the consumer. We must be open to new forms of medical care delivery. Rethinking our hostility to HMOs would be a start. While we are at it, we could embrace narrow network health plans. DaVita wants to create a health plan just for diabetics. Why not? And what about plan that only pays for treatmetns that pass rigorous cost-benefit criteria? Some consumers may welcome such an opportunity to save money without sacrificing quality.

This is just a short list of health plan innovation. Who knows what breakthrough innovations in healthcare delivery are waiting to be discovered? I don’t, but that hardly matters. I didn’t imagine the iPhone, the Prius, Amazon, Netflix, or Sam’s Club, but that didn’t stop someone else from inventing them. We will continue to see breakthrough innovations throughout the economy, because the market will reward them. That is not a leap of faith. That is reality. In the same way, we will see breakthrough innovations in healthcare delivery if the market will reward them. That too is a reality. And that is where we must steer our healthcare economy.

We can get there in one of two ways. We can let the government be the “market,” through its ongoing control of Medicare (or even within a single payer system.) But the notion of breakthrough innovation emerging from Washington may strike some as oxymoronic. Besides, if Washington controls everything, we will at best get one set of innovations. The main thing about innovation is that one rarely knows in advance which will work best.

Truly breakthrough innovation comes from the cauldron of market competition. This is why health economists have time and again offered the same simple prescriptions:

– Eliminate the tax exemption for health insurance, or at least limit the exemption to the cost of some base plan. If some consumers want more generous coverage, let them pay for it with their own dollars. (Paul Ryan has a similar idea for Medicare. But this by itself is not nearly enough.)
– Relax laws that restrict entry of providers and insurers. Certificate of Need is number one on this list, but there are many others.
– Vigorously enforce antitrust laws against payers and providers. The appointment of Leemore Dafny as Deputy Director in the FTC Bureau of Economics is an exciting step in this direction
– Find a way to reduce the power of dominant insurers. This is easier said than done and I cannot say more about this for reasons that many of you might guess.
– Relax rules on insurers that require them to cover virtually all medical services regardless of cost-effectiveness.

As important as these steps are, I think we need to do more one thing. Patients have delegated power to their doctors and hospitals for a reason – they need someone they can trust who will not place cost above quality. As we know, this system went too far, virtually ignoring costs without necessarily assuring quality. A system that emphasizes cost competition without proper quality controls will go too far the other way and could be just as disastrous. We must strike some balance in the marketplace, and for this we must have reliable measures of quality of care that can be used to hold our providers and our payers accountable. More importantly, patients cannot continue to ignore these measures.

In my next blog, I return to the theme of healthcare quality – how to measure it, how to report it, and how to reward I, and how to hit patients over the head with it.

David Dranove, PhD, is the Walter McNerney Distinguished Professor of Health Industry Management at Northwestern University’s Kellogg Graduate School of Management, where he is also Professor of Management and Strategy and Director of the Health Enterprise Management Program. He has published over 80 research articles and book chapters and written five books, including “The Economic Evolution of American Healthcare and Code Red.” This post first appeared at Code Red.

37 replies »

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  2. “Finally, if the market is so competitive why does CIGNA Healthcare (whose headquarters are in Philadelphia) not write coverage in SE Pennsylvania?”

    The health insurance market in PA is dominated by non-profit insurers, especially the Blues. Independence Blue Cross is market dominant in the Philadelphia area while Highmark Blue Cross is the leader in the western part of the state. It’s hard for smaller insurers to negotiate discounts with hospitals that are as favorable as the market dominant insurer can negotiate which, in turn, makes it difficult to offer policies on terms competitive with insurers that command a large market share.

    UnitedHealth Group, the largest health insurance company by revenue in the country, is headquartered in MN yet writes no health insurance at all in the state. The reason is that by law in MN, only non-profit insurers are allowed to sell it.

    As for minimum MLR ratios, I personally think they are completely unnecessary. My guess is they were put there for two reasons. First, Democrats are plainly hostile to health insurance companies and would have preferred to try to put them out of business altogether with a public insurance option competing on an unlevel playing field. Second, because of medical underwriting, and costs related to selling policies one at a time in the individual market resulted in high administrative costs in that sector which accounts for about 10% of people with private commercial (as opposed to Medicare or Medicaid) health insurance and only 5%-7% of the industry’s revenue. Since insurers won’t be able to consider pre-existing conditions in the future starting in 2014, those underwriting costs should largely disappear and broker commissions should shrink as well.

    Humana, one of the two largest Medicare Advantage insurers, specifically targets a 5% PRETAX profit margin when it determines its MA bids each year. Sometimes it does a bit better than that and sometimes it does worse. Like I said before, the health insurance industry is highly competitive and will remain so even as it consolidates as it did again this morning with the announced merger between Aetna and Coventry.

  3. The insurance industry may be highly competitiive but not in the sense that Dr. Dranove is seeking more competition. California and Wisconsin get some of the fruits of competition he’s talking about.

    Similarly, the use of the term “profit margin” makes me cringe. If you believe margins are truly less than 5% then why were minimum MLR’s even included in the ACA?

    Finally, if the market is so competitive why does CIGNA Healthcare (whose headquarters are in Philadelphia) not write coverage in SE Pennsylvania?

  4. Doug Arnold –

    As I and others have pointed out before, the insurer anti-trust exemption only applies to sharing claims data, not to setting prices. The purpose of the exemption to share claims is to make it possible for smaller insurers with less comprehensive claims data to price their products more accurately. Thus, it enhances competition rather than restricts it.

    The insurance industry is highly competitive and profit margins as a percentage of premium revenue rarely exceed 5% after taxes and are usually less. For non-profit insurers, which control 40%-50% of the private insurance market, profit margins range from 1%-2% in most years.

    Insurance companies do have considerable bargaining leverage over physicians who practice solo or in small groups. They have relatively little leverage over large hospital systems, hospitals with famous brand names, and large physician groups. The 6,000 doctors who are part of the Partners Healthcare System in Massachusetts, for example, have enormous market power as do the Partners hospitals, especially MGH and B&W.

  5. Are you saying large insurers strong arm providers to pay them less, then charge insured inflated prices for coverage?

    That should show up in financial statements as profit. I think Barry Carol may dispute this.

  6. How about repealing the federal antitrust exemption for insurance? In most markets a few dominant insurers set prices and contract terms and refuse to deal with organized physicians, except on ther insurer’s terms. Dranove seems most worried about providers’ clout, but seems not to fret one bit about abusive behavior by a few large insurers.

  7. “Keynes suggested that we bury gold notes and dig them up again, just to provide employment.”

    Bob –

    Do you really think the Chinese or anyone else would lend us money to do this or that working Americans would be willing to pay taxes to finance this? I don’t think so. It would be the equivalent of throwing $50 or $100 bills out of the backs of pickup trucks in low income and moderate income neighborhoods in order to create demand. The WPA at least built a lot of useful things including the high school that I went to which is still in use today (since expanded).

    It’s also interesting to note that even defense spending that everyone agrees is necessary is inherently inflationary because the people engaged in this work receive paychecks that they use to buy things but they don’t produce anything that anyone other than the military can buy. When much of economic output was devoted to the war effort during World War II, consumer goods were strictly rationed and some weren’t available at all.

    Regarding heroic measures for the elderly, I don’t think any society is prepared to invoke age based rationing – we won’t treat you if you’re over 85 or 90 unless you can self-pay. It also reminds me of the hugely controversial comment by former Colorado Richard Lamm when he suggested that elderly people had a “duty to die” so they wouldn’t become a financial burden on both society and their families.

    As for home healthcare, it’s easy to see why it’s a fraud hotspot. It’s just too easy to bill for services never provided or for more hours of care than were provided or for a higher level of care than was provided. It’s also probably not very hard to get a cooperative doctor to recommend home healthcare when the need is marginal at best. It’s too expensive and too easily abused, at least in the U.S. to make it more widely available without means testing. I don’t know much about the German system. I do know that the Swiss means test long term care. I’m not sure about how other developed countries handle it.

  8. Good points by Barry and Peter. My only contribution might be that government jobs may be useful to society even if they are inefficient. That was certainly true with the CCC and WPA in the 1930’s.

    Keynes suggested that we bury gold notes and dig them up again, just to provide employment.

    As for an entitlement to home health care………..

    Germany provides this to all citizens, as part of its public nursing home insurance, and last I checked the cost is 1.7 per cent of payroll for all workers.

    In America, that would raise about $100 billion a year.

    Germany may well have a demographic advantage, in that the devastation of World War II has resulted in a pretty small population of 70 and 80 year olds today.

    But could America provide universal home care for seniors?

    Yes, if we had the maturity to tax ourselves, and the strength not to pay for
    heroic medicine for the very old.

  9. I have read your article that is about the way out of the wildernes and i am very much imporessed from your ideas i am sure you will be keep updates.

  10. Over seven million people currently receive home healthcare at an annual cost of more than $50 billion of which about 37% is paid for by Medicare and another 19% by Medicaid. At a meeting I attended last year with former CMS Administrator, Tom Scully, he noted that many of the freestanding agencies are enormously profitable with profit margins of more than 30% of revenue. He added that there were over 600 such agencies in Dallas alone with the nationwide total as of the end of 2007 being around 9,300. There is also significant fraud in this program.

    It’s also important to note that many millions of elderly people are cared for by adult children or other relatives at no cost to taxpayers but at considerable personal sacrifice by the caregivers. If long term care or home healthcare benefits were more widely available, people would come out of the woodwork by the hundreds of thousands and possibly millions to claims benefits. There’s no way we could afford to pay for it.

    A wealth of information about home healthcare can be found at the National Association of Homecare and Hospice. The website is http://www.nahc.org. According to this organization, roughly 867,000 people worked in this field as of the end of 2007 of which about 253,000 worked for Medicare certified agencies and most of the jobs don’t pay very well besides.

    For what it’s worth, the number of people in skilled nursing facilities (nursing homes) is roughly 1.5 million which is actually not much changed from what it was 20 years ago because assisted living is a more widely available and somewhat less expensive option for those who can afford it. According to the AARP, the average cost of nursing home care nationwide is currently about $75K per year most of it paid for by Medicaid (means tested), some by Medicare, a little by private long term care insurance and the rest out-of-pocket by residents’ families.

  11. “Say we add $1 billion to Medicare spending for home health care”

    You’d be taking away employment from nursing homes and other facilities – unless those workers could be transferred to home health. Certainly I would agree that for some patients it would be more comfortable and enjoyable at home, it may also be cheaper than institutions which may pay for the extra staff required. But that would not be considered “wasteful” spending from my point of view – just better spending. You’d also have the added burden of riding hurd on more care givers to prevent fraud and mistreatment.

  12. I have no training in economics and it shows, but here goes anyways………

    Say we add $1 billion to Medicare spending for home health care (just to use a simple example)

    At $33,000 a year in salary, that hires 30,000 home health care aides.

    Beats the heck out of getting 4,000 high tech jobs out of a green technology company.

    (assuming that the goal of federal spending was to create jobs)

  13. bob, most (if not all) industry is “highly mechanized”, the prices you pay for all goods and services depends on it. Are you advocating going back to the early days of the industrial revolution with 1000s of workers (employed) at mind numbing repetitive work just to “employ” people – I don’t think so. Some work is just better done by machine and it has produced much of the leisure time we enjoy.

    We can argue about which industry creates more jobs per dollar saved from health care, but the fact is health care sucks (and sucking more) huge amounts of GDP that could be (I think) better distributed to other needed parts of the economy – maybe even more money for charitable donations. Just as I think the bank bailout could have been better spent if politicians were not in the pockets of the financial industry so much – even Obama & Democrats.

    Health care, like taxes, for the most part is not discretionary spending, and does not deserve it’s advantage of being able to generate huge wasteful spending due to that.

  14. Bob –

    My estimate of the number of jobs created per $1 billion of infrastructure spending is, in fact, too high. I probably got the number from a grandstanding politician but can’t remember specifically. However, President Obama’s Jobs Council on Competitiveness, a non-partisan group, contends that infrastructure spending is the sort of public spending that would create more jobs per dollar spent than other potential federal economic stimulus spending because it has the highest multiplier effect. Depending on the type of project, it could create as many as 18,000 well paid jobs per $1 billion spent or as few as 4,000. It’s not clear whether that includes secondary effect or what I call derivative jobs or not.

    We’re not just talking about road and bridge repair here but such efforts as modernizing the nation’s freight handling system and air traffic control systems and updating water and sewer systems. A second railroad tunnel under the Hudson River from NJ to NYC would be enormously helpful to the growth of the NYC metro region as the single tunnel that was built in 1910 is basically at capacity during rush hours and has been for some time.

    There are probably dozens of big ticket infrastructure projects around the country that could make a meaningful contribution toward improving our economic efficiency by speeding up the flow of both people and freight and would create a lot of well paying jobs in the process. If we didn’t spend so much money on wasteful and marginally useful healthcare, we might be able to fund many if not all of those projects.

  15. This is an excellent exchange, far superior to what takes place on many blogs. Thank you, Matthew Holt!

    Barry, in all respect, I think that your job numbers for infrastructure spending are way off the mark, for two reasons:

    1. Highway maintenance is highly mechanized.

    The New Deal employed many thousands of young men to build roads, because each man had a shovel.

    Even during Obama’s Recovery Act, I saw $20 million road projects with 50 employees. When we have 15+ million unemployed, big deal.

    2. Fixing every single pothole in Ohio will not convince an Ohio manutacturer to locate a plant in Cleveland, when he can locate in China and pay $3.00 a day for labor.

    Journalists in New York drive to La Guardia and tell us that our roads are crumbling. Bg deal. They could drive from Omaha to Lincoln NE and never hit a pothole in 100 miles. There are about 40 states like Nebraska, This is not 1932, when shipments from Sioux Falls to Minneapolis were held up for all of March due to mud.

  16. Just as the low incidence of influenza this past winter freaked out he hospital bean counters cause many beds were not filled, the bubble in the health market will pop soon.

    The demand for doctors and hospitals will drop as people go to a calorie restricted diet, stop drinking excessive alcohol, stop smoking, and take their statins and aspirins.

    The health demand will drop, the market will bottom out, hospital executives will need to take a few $ million less, costs will come down, and doctors, their offices, and their EMRs together with the hospitals and all of their robots will be under water, awaiting a government bailout.

    How innovative! if I do say so myself.

  17. Margalit –

    I think you’re a bit too cynical. I tend to be more optimistic when it comes to economic issues though on other issues I sometimes see the glass as half empty. I was just trying to make the theoretical point that we could lose jobs in the healthcare sector if we were able to materially reduce costs and productively redeploy the resources elsewhere. If employer premiums suddenly shrank by 30% the money could find its way to employees for higher wages, new investments to grow the business or dividends to shareholders among other things. Where the money would ultimately wind up I have no idea but to extol high healthcare spending because it provides a lot of people with a salary makes no more sense than advocating for high defense spending for the same reason.

  18. Barry,
    Even if there was 30% waste in health care that could be saved, only a portion of that is federal and state money. If any portion of the private sector savings is passed down to employees and citizens, and I doubt that any would, it will most likely go to support the economies of foreign countries in the form of cheap plastic goods.
    Considering the current mindset of our politicians, the federal and state savings will more likely wind up in some other corporate welfare scheme than in infrastructure improvements, not to mention that a large amount of those savings would have to be retained to ensure sustainability of public health care (I wouldn’t hold my breath for that to happen either).

  19. The other things might also include spending for infrastructure modernization and repair. The consensus among economists, I believe, is that such spending generates 25,000 jobs per $1 billion spent. I assume this is a gross number including what I call derivative jobs which are jobs that support the local community like local real estate agents, gas stations, dry cleaners, restaurants and other personal service businesses. Primary jobs are those directly involved in producing products or services for which there is a national market like autos and other manufactured products, agriculture, air transportation, drugs and medical devices, etc.

    So, if we could magically eliminate the estimated 30% of healthcare spending that is wasteful, 30% of the estimated 14 million healthcare jobs would also disappear. That’s 4.2 million jobs. Add in twice as many derivative jobs, that’s 8.4 million or 12.6 million jobs lost altogether. If the freed up $800 billion were all spent on hopefully sensible infrastructure projects, we would create 20 million new jobs, of which two-thirds would be what I call derivative as opposed to primary jobs. A more modern infrastructure should produce less damage to vehicles from potholes and the like, fewer car accidents and a lot less wasted time sitting in traffic.

    The main point is that healthcare jobs in the here and now are easy to see and to quantify. It’s much harder to imagine how much better off we might be if those resources could be redirected elsewhere. They are not just going to sit idle. Remember that at one time over half of the U.S. population worked on farms. Fewer than 2% do now. Our economy is dynamic, adaptable and resilient which is a big competitive advantage we have over much more rigid European labor markets.

  20. “The other things might be flat screen TV’s or gambling or riding lawn mowers.”

    Or pensions or education or a better place to live.

  21. Peter, you are correct that if we can take money away from health care, that would enable us to spend more money on other things.

    The other things might be flat screen TV’s or gambling or riding lawn mowers.

    Are these things better than health care? I cannot judge that, but it is not a snap decision against health care.

    Margalit, you make a good point. The ‘bubble’ in health care has delayed the collapse of our job market, and it has been a pretty good 30 year delay, but still just a delay.

    Not unlike the housing ‘bubble’ that gave millions of Americans good jobs in construction and mortgage brokerage, until the bursting in 2008.

    You can look on the Democratic party’s call for ‘more spending on education’ as another delaying action.

    Anecdotally, I cannot even begin to count the families that I have seen where the husband lost a good job in manufacturing, but the family stays in the middle class by the wife getting a good job in health care or education.

  22. Outsourcing and automation are decimating the middle class here and building up the middle class in other places in the world.
    Perhaps health care has slowed down the trend somewhat, but once something can be done remotely, over the Internet, it is just a matter of time before that occupation migrates to where the labor costs are lower.

    There are quite a few health care jobs in the “back office” that have been outsourced or offshored already and now payers are moving clinical review jobs off shore. My guess is that primary care is the next in line, since it is increasingly framed as a consultative/management job and it is already devalued, and that’s how the high tech jobs migration started as well. The pay differential between docs here and the likely off shoring targets is also very attractive. And if that’s not enough, then the movement to employed doctors and for-revenue chains of medicine (thanks Dr. Gawande) will make this whole thing a lot easier.
    Eventually we will just serve hamburgers to each other and empty bedpans for each other’s grandma.

  23. “what if health care spending is not what “takes down the economy”, but in fact is what “props up the economy”?”

    bob, health care takes spending away from other industries. If we paid less for health care we’d be able to spend more on other goods & services. What counts is the general wealth of the population and it’s ability to spend (or save). Certainly the GOP and local communities argue, in the face of cuts, that defense, “props up their economy”.

    But the fact that so much of GDP is spent on health care means that other employers get (and struggle for) a smaller and smaller piece of the pie. That’s the GOPs strategy in taking spending away from government so that we supposedly can spend it on other stuff that matters more than what government supplies.


    Anyone who doubts this should spend an hour looking for a job on Simply Hired or Indeed.com or a similar website.

    About 80% of the family wage jobs offered are in health care.

    Health care has been like a peaceful version of World War II for American labor markets. Without health care, automation and outsourcing would have decimated the middle class.

    This does not mean that high health care spending can continue forever, or that the benefits of health care spending are shared by all. Certainly no one who is being harassed by medical bill collectors is deriving much personal benefit.

    But as machines and cheap foreign labor can do more and more, we need
    Americans to make money giving each other back rubs, and caring for each other’s grandmother. It is not exactly the March of Industry, but I think it is keeping the country going.

  25. In all respect to Dr Dranove– who contributes a lot to the debate —
    what if health care spending is not what “takes down the economy”, but in fact is what “props up the economy”?

    As Michael Mandel and others have pointed out, health care jobs are hard to outsource, and the productivity is generally awful. This leads to more high-paying jobs for Americans.

    Anyone who doubts this should spend

  26. “Certificate of Need is number one on this list, but there are many others.” Huh?

    Great idea, professor. Just what we need. Two hospitals within a mile of eachother and more MRI scnners in one county, than in all of Canada.

  27. I don’t know whether anyone could give a definitive answer, but there are several options. For instance, a lot of discretionary (=medically useless or even harmful) testing is driven by patient expectations and fulfilling PCPs. The initiation of certain tests could be restricted to specialists and maybe ER physicians (as a disclaimer, I am all for raising pay, education and status of PCPs … but the fact that most imaging is not invasive and not very unpleasant caused a wave of unnecessary imaging; specialists like myself may overuse imaging, many PCPs order imaging tests at times completely irrationally). There is evidence that half of PCPs think that their own patients are overtreated. That should give us pause.

    It is impossible to curb all overuse, like it is impossible to stop all bad driving, ot all unethical business practices … but that still doesn’t mean that one cannot design rules that would help.

    Maybe the most important step is a change in culture, but: NOT to directly fight the culture of overuse, but to tell the patient that there is a choice: listen, you can have all tests that doc X might recommend – and pay 12K a year for your coverage, or you can decide to forego tests that specialists agree are of no or at best marginal value and pay half of that (and of course you can pay for the comprehensive coverage or pay out of pockets). So it is not a matter of panels, it is rather a question of choice (whether to use the expertise of an independent expert panel).

    Over years, many if not most people will realize that good healththcare value means (for instance) appendectomies, cancer care and rational management of chronic conditions but not wild diagnostic testing and screening at the first time a vague and nonthreatening symptom is reported, chemotherapies with at best marginal life extension, surgeries aimed at chronic pain without proven benefit ….

    And as a side note, one could give a financial benefit for patients with a living will, even if that will is just a checkmark at “do everything” – I think only a minority will check that if there are reasonable alternatives, although I could be wrong.

  28. “Eliminate the tax exemption for health insurance”

    Republicans will scream – TAX INCREASE!”. And how do you think the holders of employee paid insurance will vote?

    “Relax laws that restrict entry of providers and insurers”

    More providers mean more billing not more competition and lower prices. More insurers will just mean providers have more bargaining power to get the best financial deal, not lower prices for patients. And just what do you want to “relax”?

    “Find a way to reduce the power of dominant insurers.”

    Dominate insurers should be able to drive provider costs down. Regulating insurers like utilities will control them, as we do with car insurance.

    “Relax rules on insurers that require them to cover virtually all medical services regardless of cost-effectiveness.”

    It’s called a race to the bottom. Reduce the pool and those in the smaller pools pay more. Health care is not a buffet of car buying options, it’s health care dammit.

    “And what about (a) plan that only pays for treatmetns that pass rigorous cost-benefit criteria? Some consumers may welcome such an opportunity to save money without sacrificing quality.”

    Who will decide and when? Won’t this be a “DEATH PANEL”?

    If you want real “market forces” then withdraw the government from all health care interaction – that will produce a “survival of the fittest” market where we can just step over the bodies in the street – maybe even some Tea Party bodies.

  29. Margalit –

    I don’t know the answer to your question. Perhaps there might be a consensus involving a limited number of expensive but controversial treatments such as back and spine surgeries, cardiac stents in asymptomatic patients, surgical interventions for patients with advanced Alzheimer’s or dementia and expensive cancer treatments when the prognosis is dire, among others. The payment risk might more appropriately be placed on doctors and hospitals. That is they wouldn’t be paid if the procedure is inappropriate but it would be if they convinced the payer ahead of time that it is appropriate in a particular patient’s circumstances. If the patient is informed that the procedure is not covered but the patient wants it anyway, then it would be the patient’s responsibility to pay for it. There wouldn’t have to be nearly as many insurance coverage permutations and combinations as you suggest

    There could also be clearer cut exclusions like preventive screenings that don’t get at least a B from the U.S. Preventive Services Task Force and drugs that are not on a formulary.

    There would also be litigation issues that would have to be dealt with and perhaps the default protocol in the absence of a living will or advance directive might have to be something other than “do everything” such as apply common sense depending on the circumstances again with appropriate legal protection for providers.

    Rbaer or one of the other doctors could probably speak to this issue more clearly than I can.

  30. Barry,
    Wouldn’t all these thousands of permutations have to be identifiable as such before consumers purchase the plan? Shouldn’t they be informed ahead of time so they understand what they are buying? Will plan descriptions now have hundreds and hundreds of pages?
    I’m certain no two “cost-effective” plans will be the same because as rigorous as criteria may be, they will not be definitive and universal, or would they?

  31. rbaer –

    I agree with you. However, any service, test or procedure that insurance would not pay for would have to be identifiable as such ahead of time by doctors so they could inform the patient. If the patient still wants it, it will be clear before services are rendered that it’s the patient’s responsibility to pay for it. Also, I’m with you 1,000 percent on the need for the living wills.

  32. …. and don’t forget to label all these things”consumer-driven” or better yet “patient-centered”, as in patient has “choice in all matters, without exception”…..

  33. “And what about (a) plan that only pays for treatmetns that pass rigorous cost-benefit criteria? Some consumers may welcome such an opportunity to save money without sacrificing quality.”

    I think that plan would work. Have a plan that does not pay for surgery without proper indication, for treatments with marginal benefit, for tests ordered without good reason (often ordered by PCPs at the explicit or implicit request of the patient) and that strongly encourages patients to have some kind of living will …. that would dramatically cut both cost and cost growth. Pass the savings on to the policyholder, and more and more people will see the light (of course they can choose what ever policy they want).

    And BTW, medicare would be moving that way (as it should), but the US is not yet ready, for reasons of culture and (overwhelmingly conservative) demagoguery.