The economic fundamentals of healthcare in the United States are unique, amazingly complex, multi-layered and opaque. It takes a lot of work and time to understand them, work and time that few of the experts opining about healthcare on television have done. Once you do understand them, it takes serious independence, a big ornery streak, and maybe a bit of a career death wish to speak publicly about how the industry that pays your speaking and consulting fees should, can, and must strive to make half as much money. Well, I turn 67 this year and I’m cranky as hell, so let’s go.
The Wrong Question
We are back again in the cage fight over healthcare in Congress. But in all these fights we are only arguing over one question: Who pays? The government, your employer, you? A different answer to that question will distribute the pain differently, but it won’t cut the pain in half.
There are other questions to ask whose answers could get us there, such as:
- Who do we pay?
- How do we pay them?
- For what, exactly, are we paying?
Because the way we are paying now ineluctably drives us toward paying too much, for not enough, and for things we don’t even need.
A few facts, the old-fashioned non-alternative kind:
- Cost: Healthcare in the U.S., the whole system, costs us something like $3.4 trillion per year. Yes, that’s “trillion” with a “T”. If U.S. healthcare were a country on its own it would be the fifth largest economy in the world.
- Waste: About a third of that is wasted on tests and procedures and devices that we really don’t need, that don’t help, that even hurt us. That’s the conservative estimate in a number of expert analyses, and based on the opinions of doctors about their own specialties. Some analyses say more: Some say half. Even that conservative estimate (one third) is a big wow: over $1.2 trillion per year, something like twice the entire U.S. military budget, thrown away on waste.
- Prices: The prices are nuts. It’s not just pharmaceuticals. Across the board, from devices to procedures, hospital room charges to implants to diagnostic tests, the prices actually paid in the U.S. are three, five, 10 times what they are in other medically advanced countries like France, Germany, and the U.K.
- Value: Unlike any other business, prices in healthcare bear no relation to value. If you pay $50,000 for a car, chances are very good that you’ll get a nicer car than if you pay $15,000. If you pay $2200 or $4500 for an MRI, there is pretty much no chance that you will get a better MRI than if you paid $730 or $420. (Yes, these are real prices, all from the same local market.)
- Variation: Unlike any other business, prices in healthcare bear no relation to the producer’s cost. None. How can you tell? I mean, besides the $600 price tag on a 69-cent bottle of sterile water with a teaspoon of salt that’s labeled “saline therapeutics” on the medical bill? (Yes, those are real prices, too.) You can tell because of the insane variation. The price for your pill, procedure or test may well be three, five, even 12 times the price paid in some other city across the country, in some other institution across town, even for the person across the hall. Try that in any other business. Better yet, call me: I have a 10-year-old Ford F-150 to sell you for $75,000.
- Inefficiency: We do healthcare in the most inefficient way possible, waiting until people show up in the Emergency Department with their diabetes, heart problem, or emphysema completely out of control, where treatment will cost 10 times as much as it would if we had gotten to them first to help them avoid a serious health crisis. (And no, that’s not part of the 1/3 that is waste. That’s on top of it.)
So who’s the chump here? We’re paying ridiculous prices for things we don’t necessarily need delivered in the most inefficient way possible.
Why?
Why do they do that to us? Because we pay them to.
Wait, this is important. This is the crux of the problem. From doctors to hospitals to labs to device manufacturers to anybody else we want to blame, they don’t overprice things and sell us things we don’t need because they are greedy, evil people. They do it because we tell them to, in the clearest language possible: money. Every inefficiency, every unneeded test, every extra bottle of saline, means more money in the door. And they can decide what’s on the list of what’s needed, as long as it can be argued that it matches the diagnostic code.
That’s called “fee-for-service” medicine: We pay a fee for every service, every drug, every test. There’s a code for everything. There are no standard prices or even price ranges. It’s all negotiated constantly and repeatedly across the system with health plans, employers, even with Medicare and Medicaid.
We pay them to do it and the payment system demands it. Imagine a hospital system that bent every effort to providing health and healthcare in the least expensive, most effective way possible, that charged you $1 for that 69-cent bottle of saline water, that eliminated all unnecessary tests and unhelpful procedures, that put personnel and cash into helping you prevent or manage your diabetes instead of waiting until you show up feet-first in diabetic shock. If it did all this without regard to how it is paid it would soon close its doors, belly up, bankrupt. For-profit or not-for-profit makes little difference to this fact.
If we want them to act differently, we have to pay them differently.
Paying for Healthcare Differently
But wait, isn’t that the only way we can pay? Because, you know, medicine is complicated, every body is different, every disease is unique.
Actually, no. There is no one other ideal way to pay for all of healthcare, but there are lots of other ways to pay. We can pay for outcomes, we can pay for bundles of services, we can pay for subscriptions for all primary care or all diabetes care or special attention for multiple chronic conditions, on and on, the list of alternative ways to pay for healthcare is long and rich.
There are now surgery centers that put their prices up on the wall, just like McDonalds — and they can prove their quality. There are hospital systems that will give you a warranty on your surgery: We will get it right or fixing the problem is free.
Look: You get in an accident and take your crumpled fender to the body shop. Every fender crumples differently, maybe the frame is involved, maybe the chrome strip has to be replaced, all that. So there is no standard “crumpled fender” price. But it is not the first crumpled fender the body shop has ever seen. It’s probably the 10,000th. They are very good at knowing just how to fix it and how much it will cost them to do the work. Do you pay for each can of Bondo, each disk of sandpaper, each minute in the paint booth? No. They write you up an estimate for the whole thing, from diagnosis to rehab. Come back next Thursday and it will be good as new. That’s a bundled outcome. It’s the body shop’s way of doing business, its business model.
There are new business models arising now in healthcare (such as reference prices, medical tourism, centers of excellence, “Blue Choice” and other health plan options) that force hospitals and surgical centers to compete on price and quality for specific bundles, like a new hip or a re-plumbed heart.
Healthcare is a vast market with lots of different kinds of customers in different financial situations, different life stages, different genders, different needs, different resources, yet we have somehow decided that in pretty nearly all of that vast market there should be only one business model: diagnostic-code-driven fee for service. Change that, and the whole equation changes. It’s called business model innovation. If we find ways to pay for what we want and need, not for whatever they pile onto the bill, they will find ways to bring us what we want and need at prices that make sense. That’s called changing the incentives.
Already Happening
Is this pie in the sky? No, it’s already happening, but in ways that are slow and mostly invisible to anyone but policy wonks, analysts, and futurists like me. The industry recognizes it. Everyone in the healthcare industry will recognize the phrase “volume to value,” because it is the motto of the movement that has been building slowly for a decade. It’s shorthand for, “We need to stop making our money based on volume — how many items on the list we can charge for across how many cases — and instead make our money on how much real value, how much real health, we can deliver.”
Self-funded employers, unions, pension plans, and tribes are edging into programs that pay for healthcare differently with reference prices, bundled prices, onsite clinics, medical tourism, direct pay primary care, instant digital docs, team care, special care for those who need it most, all kinds of things. The Affordable Care Act set up an Innovation Center in the Centers for Medicare and Medicaid Services, and the government has been incrementally pushing the whole system more and more into “value” programs.
Are We There Yet?
So why hasn’t it happened yet? Why aren’t we there yet?
Because it’s hard, it’s different, and it hurts. And there is a tipping point, a tipping point that we have not gotten to yet.
It is very hard to loosen your grip on a business model as long as that business model pays the bills. We built this city on fee for service, these gleaming towers, these sprawling complexes, these mind-bending levels of skill and incomprehensible technologies. To shift to a different business model requires that everybody in the healthcare sector change the way they do everything, from clinical pathways to revenue streams to organizational models to physical plants to capital formation, everything all the way down. And it’s all uncharted territory, something the people who run these systems have not yet done and have little experience in. It’s guaranteed to be the end of the line for some institutions, many careers, many companies.
So far, the government “volume-to-value” or “value-based-payment” programs are incremental, baby steps. They typically add bonus payments to the basic system if you do the right thing or cut payments a few percentage points if you don’t. My colleague health futurist Ian Morrison calls these programs “fee for service with tricks.” They do not fundamentally change the business model.
Private payers such as employers have only gradually been getting more demanding, unsure of their power and status as drivers of change in this huge and traditionally staid industry. Systems such as Kaiser that have a value-based business model (so that they actually do better financially if they can keep you well) still have to compete in a system where the baseline cost of everything they need, from doctor’s salaries to catheters, is set in the bloated fee-for-service market. So movement is slow, and we are not yet at the tipping point.
Back to Who Pays
This is not a libertarian argument that everyone should just pay for their own healthcare out of their own pocket and let the “free market” decide. The risks are far too high, and we are terrible at estimating that risk, financial or medical. All of us are, even your doctor is, even I am. A cancer can cost millions. Heck, a bad stomach infection that puts you in the hospital for 10 days could easily cost you $600,000. Bill Gates or Warren Buffet can afford that, you and I can’t.
We need insurance to spread that risk not only across individuals but across age groups, across economic levels, and between those who are currently well and those who are sick. For it to work at all, the insurance has to be spread across everyone, even those who think they don’t need it or can’t afford it. You drive a car, you have to have car insurance, even if you are a really safe driver. You buy a house, you must have fire insurance, even though the average house never burns down. You own and operate a human body, same thing, even though at any average time you hardly need medicine at all.
If we are to have insurance for everyone, we need to subsidize it for those who have low incomes — and this has nothing to do with whether they “deserve” help, or even with whether healthcare is a right. It’s about spreading the cost of a universal human risk as universally across the humans as possible. At the same time, such subsidies need to be given in a way that helps people feel that they are spending their own money, that they have a stake in spending it wisely. This is not simple to do, but it can be done.
This is also not necessarily an argument for a single payer system. Single payer, by itself, will not solve the problem. It doesn’t change the incentives at all. It just changes who’s writing the check. What the system needs most is fierce customers, people and entities who are making choices based on using their own money (or what feels like it) to pay for what they really need. This forces competition among healthcare providers that drives the prices down. That means the system needs variety, a lot of different ways of paying for a lot of different customers. If we can figure out how to do that in a single-payer system, well then we’re talking.
Obviously the ultimate customer in healthcare is the individual, since medicine is about treating bodies, and we have exactly one to a customer. But the risk is too high at the individual level, and the leverage is too low.
So employers, pension plans and specialized not-for-profit mutual health plans whose interests really line up with the interests of their employees or members can act as proxies. They can force providers of healthcare (hospital systems, medical groups, labs, clinics) to compete for their business on price and quality. They can refuse to pay for things that the peer-reviewed medical literature shows are unnecessary. They can pay for improvements in your health rather than just fixing your health disasters. They can help their members and employees become fierce customers of healthcare with information and with carefully-titrated incentives.
Here’s one example of an incentive: A payer says to its members, “You need a new knee? Great, fine. Here are all the high-quality places you can get that done in your area. You can choose any that you like. But here’s a list of high-quality places in your area that do it for what we call a “reference price” or even less. Choose one of those places, and we will pay for everything from diagnosis to rehab. You can choose a place with a higher price if you like, but you’ll have to pay the difference yourself.” With reference prices, the employee or member partners with the payer in becoming a fierce, demanding customer, and prices for anything treated this way come crashing down.
Both payers and individuals, by being fierce customers, can force the healthcare providers in turn to become fierce customers of their suppliers, forcing pharmaceutical wholesalers and device manufacturers to bid on getting their business. “This knee implant you are asking us to pay $21,000 for? We see you are selling it in Belgium for $7,000. So we’ll pay $7,000 or we’ll go elsewhere.” The “price signals” generated by fierce customers reverberate through the entire system.
What’s the look and feel?
“Healthcare for half” sounds to most people like a Greyhound bus station with stethoscopes, like flea market surgeries, and drive-through birthing centers. Paradoxically, though, a lean, transparent system catering to fierce customers of all types would feel quite the opposite, offering more care, even what might feel like lavish care, but earlier in the illness or more conveniently. It might mean a clinic right next door to your workplace offering private care on a walk-in basis, no co-pay, even your pharmaceuticals taken care of — or you could choose to go elsewhere to another doctor that you like more, but you have to schedule it and pay a copay for the visit. Why will providers make healthcare so convenient and personal? Because if they are paid to be responsible for your health it’s worth the extra effort and investment to catch a disease process early, before it gets expensive.
It might mean, when your doctor says you need an MRI on that injury, getting on your smart phone to conduct an instant spot auction that allows high-quality local imaging centers to bid for the business if they can do it in the next three hours. It might mean, if you are in frail health or have multiple chronic diseases, being constantly monitored by your nurse case manager through wearables, and visited when necessary or once a week to help keep you on an even keel. It might mean your health system not being so quick to recommend a new knee, and offering instead to try intensive physical therapy, mild exercise and painkillers to see if that can solve the problem first (Pro tip: It often does).
Changing the fundamental business model of most of healthcare will be difficult and painful for the industry. But if we look to other countries and say, “Why do their systems cost so much less than ours? Why can’t we have what we want and need at a price we all can afford?” — this is the answer.
Change the way we pay for healthcare, not just who pays, and we can rebuild the system to be at the same time better and far cheaper.
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Joe Flower says: “…It is 1983-84, when DRGs were implemented in the federal programs and coding began…the system of code-driven fee-for-service payments…there’s your problem.”
Joe, I had the exact same conclusion in 1994. During the Hillarycare push I wrote a reform proposal to provide the incentives for efficiency you describe. My plan was basically to reproduce the Kaiser model of provider networks that one could subscribed to. The benefit is the dynamic you site, the provider has the incentive to efficiently keep its patient-subscriber healthy. That is “bundling” to the extreme. The drawback is limited networks and lack of coverage in rural areas where it would be too small to have competition. The drawback of bundling is the individuality of complications and recoveries.
The answer is fee for service combined with quick statistical comparators to drive competition. The Ebay model gives a price, description and seller trustworthiness in at a glance. Imagine a phone app that asked 20 questions then gave the top 10 choices based on price, locality and quality satisfaction of whatever ails one.
https://www.change.org/p/hhs-secretary-of-tom-price-one-published-pricing-healthcare
Ronald, unlike popular perception there are marked differences from patient to patient so one has to be judicious with the apples to apples comparisons.
Ronald, as a rule less is better, but if you like a lot of paper rattling around I won’t try and dissuade you from that idea..
A free marketplace is not run by government. Government is political so expect a political marketplace if it is run by government. Government will perform for the voters and pass legislation for the lobbyists.
You could buy a CPT-4 code book for $100 or so. I bought one about 20 years ago but haven’t bothered to buy another one because I have Medicare and a comprehensive supplemental plan now that my wife and I pay quite a lot of money for.
Even in Canada’s socialized single payer system, doctors use billing codes to get paid.
If preset bundles were not coded how would the patient be quoted the price and what the price includes? Would it be custom quote? I am trying to make a system that gives the patient apples to apples comparison shopping for price and quality rankings.
Allan, I’m not sure that you mean by adding complexity. If we want the consumer to be a vigorous decision maker my aim would be to facilitate that by supplying fast relevant information without burying in over-choice chaff. I hope I’m thawing you a little:)
I would like the marketplace to be run with government license and regulatory authority but the consumer feedback would voluntary and anonymous, even to the provider (unlike Ebay). They would need the billing supplied key code to log their anonymous rankings.
Insurance could be sold on the marketplace or directed to the insurer’s interface just like today. Healthcare delivered over the web should be subject to the same regulations as any other setting, IMO.
#1 You are adding complexity and that is not good. I don’t like to interfere in market decisions so I even hesitate advocating one template. Such interference can cause problems (example: see Heisenberg principle), however, the patient needs a method of comparison so he knows what he is getting.
#2 #3 Amazon’s feedback doesn’t involve a government entity, is voluntary and organically grown.
#4 I may have understood what you meant. If you mean selling insurance or something similar over the Internet etc. I have no problem. That is a marketplace phenomenon. If you mean treatment over the net, that too is a marketplace phenomenon that needs to grow organically. We have some, but I am not yet impressed with what we have.
At some point those who design or influence health care design need to understand the strengths and limitations of the patient population of the United States. This is a Basic 101 Prerequisite to designing health care for most of the nation. As mentioned, much of the so called waste is due to poor health literacy and patient demand. Another major source is attempted micromanagement – often because the designers do not understand patients, physicians, or the endless permutations of interactions.
If you do not understand this, you do not understand 32% of Medicare costs at the last year of life or how to address this. But mostly if you do not stop marginalizing support for the team members that deliver the care, whatever care that is delivered will be too little, too late, poorly coordinated, and unmatched to patient needs and expectations.
Endless permutations are what prevent big data from doing much other than distracting health care away from the delivery of health care – as seen with much of health policy change for 35 years.
This may not be obvious to those immersed in top concentrations of physicians, facilities, health, and other resources but it is quite obvious in primary care, rural health, mental health, basic services, and 2600 lowest concentration counties – the ones expressing their disgust with any number of designs in the last election.
Health Insurance CEOs pleased with their recent Trump Administration visit is not a good sign for meaningful change.
Joe, the surgeon operates to correct the mitral valve dysfunction you talk about above. He may not know at the time whether a valve replacement will be necessary or not. He also might see an advantage to do a simple correction of a partially closed artery. I am not saying bundling is bad for I bundled many services together in my office visit when patients paid cash and had insurance wasn’t involved. How do you bundle the above circumstances?
“In the usual way of doing things, there is no driver toward lower costs. All the drivers are the other way. There are no real price signals from the end user, and supply generates demand with no price-induced moderation.”
That is because we killed the free marketplace so the end user is given a bill with a bunch of numbers on it that is automatically submitted to the insurer and paid.
I have looked at my bills and my families bills and despite the fact that I am a physician myself I frequently don’t have the slightest idea of where the numbers came from or how I was benefited. The socialists have created a healthcare design that makes things so complex we have to hire special experts to interpret what is going on.
[Free market does not exclude government regulation, insurance or even government funds. Free market is a willing buyer and a willing seller that together create a transaction.]
I’ve looked at the actual studies in the past and they were all over the place. Many studies limit the variables to those that prove their desired case. Let me give you an example I remember a malpractice suit that happened a couple of decades ago. The neurosurgeon was sued for not doing a CT scan early enough. After about 5 years it turned out that the physician won the case and that there was no need for the CT scan early in the game. It was unnecessary. The care provided was good.
The cost of that case didn’t add that much to the total malpractice bill, but there was a drastic rise in the number of CT scans performed throughout the state. No one wanted to be sued so we paid a huge price for CT scanning based upon one case that was won by the physician. Today we are advocating doing less CT’s. If today less is better then all the costs for those CT scans that are considered ill advised have to be included in the cost of malpractice. It is a huge sum. Malpractice raises the bar in perpetuity and those costs have to be added up for all those years.
Will a cap on Malpractice alter that result? I don’t know, but physicians don’t want to be sued even if there is a cap, so the cap alone might not be an answer to the cost issue though it might help as far as affordability of malpractice for the physician. In another case one subspecialty suddenly couldn’t afford malpractice premiums so almost all in that specialty went bare. My understanding, though I didn’t research it, was that malpractice costs and the number of suits fell dramatically.
In my mind it appears that if big win money is not available to the plaintiff and thus the attorney, claims dry up. That may have happened in California with their cap, I don’t think this was mentioned in the incidental economist or its PDF reference which makes me question the validity of the conclusions reported. Too often these studies deal with limited variables so their conclusions are not justified.
What needs to be mentioned is that I as a physician support the idea of malpractice. I can compete for price and all those other things Joe talks about, but I can’t compete against those physicians that might be dishonest and are negligent in their attempts to make as much money possible. I view malpractice as protection, but it is vastly overdone and we need to change what constitutes malpractice and make sure there is more transparency regarding the expert witnesses. On the same issue some of these witnesses will give diametrically opposed testimony when changing from the plaintiff to the defendants side.
As an aside, I would like more proof regarding this comment of yours, “Things that the peer-reviewed literature show are unnecessary and not helpful, but we do anyway … Like colonoscopies as first-line mass screening for colon cancer.” We have to check the literature but I believe death from cancer of the colon is dropping in the US compared to Europe. Colonoscopy picks up tumors before they do damage. It is expensive so while one might not want a pool to pay for it I believe it is beneficial enough for me to pay out of pocket. I would not say that colonoscopy has little value and think Joe should provide the citation if he thinks his literature says otherwise. We provide a lot of care that has less value than colonoscopy. That is where large amounts of money for a pool can be saved. Additionally government is pushing practices to be purchased by hospitals and other entities. This too is strange and demonstrates that government isn’t watching the dollars for when physicians do colonoscopy as private physicians outside the hospital the price Medicare pays is cut up to 50% for the same treatment.
Joe, you said: “In the usual way of doing things, there is no driver toward lower costs.”
Bingo. Exactly. This was the glaring defect of Obamacare. For some astonishing reason, no one thought to put in either 1. monopsonic purchasing–large buying by purchasers of health care or 2. shopping and competition or variants thereof such as indemnity insurance (patient gets dough first) or vouchers.
Political fear stopped #1. Ideology stopped #2.
I think these are the only two ways to drive prices lower.
I agree. I think deductibles are great in general….and we made contributions to employees H.S.A. accounts to help them with their deductibles when they enrolled in catastrophic plans….voila! they turned into pretty fierce, demanding and savvy patients (well, to varying degrees…but all in the right direction). But the ACA went too far…..I call their deductibles Frankenstein deductibles…..and instead of giving subsidies to patients they gave them to the insurance companies. Wrong way to go.
I respect doctors and physicians’ expertise enormously. As I mentioned, I have no idea where you find insult to your medical abilities. Nor in my suggestion that an ideal industry, paid differently, might trend more toward practices that you “routinely advocate.”
Yes, with this caveat: An optimal system must keep the cost of deductibles and co-pays and co-insurance within the reasonable range of the consumers at their economic level, so that they will exercise their choices prudently and not simply opt out entirely and pray that they never get sick.
This is exactly the problem that is not understood (or swept away in a cloud ideological gas) in the current discussion in Washington. Sending deductibles even higher while reducing or eliminating subsidies for lower income people will actually drive National Medical Expenditures even higher, not lower.
Sure. There is a crucial difference, though. Coding is done externally. Bundling is based on the work of the medical team at the institution.
Here’s why that makes a difference: If you define the bundle as the optimal pathway to a quality outcome for a given procedure or task (say, a mitral valve replacement) including the costs for necessary variation, then waste (unnecessary steps and procedures that do not increase the quality) become obvious and anti-competitive.
Bundling allows and encourages competition on price and quality between institutions.
I’m not quite getting your argument. If you define “bundles” as “everything that’s causing a problem,” then well, yes, bundles are the problem.
You say that if we can get the costs for all these different things “low enough and reasonable enough,” then we don’t need to worry about the mechanism. True, but then we have to ask why hasn’t it happened over the last 35 years? More to the point, what would drive costs to a “low and reasonable” level. In the usual way of doing things, there is no driver toward lower costs. All the drivers are the other way. There are no real price signals from the end user, and supply generates demand with no price-induced moderation.
“We all need to get together to do what you want. The whole health care team, not just the docs.” Exactly. As in any other economic sector, the total cost of ownership of the product represented in the price of each product you are producing, whether the product is an uncomplicated birth, a range of cancer treatments for a particular diagnosis, or the security of having good emergency medicine available in your community.
What you are talking about, Joe, is what occurs in socialism or monopoly. The buyer has one choice and no one else is around to provide a better one. If your doctor can’t explain what he is doing and an approximate cost (for his personal treatment) then you should find another doctor. He might not be able to tell you what your insurance company will pay, but that is your insurance company not his.
A prudent customer goes to the seller and tells him what he wants. The seller tells him what he has and the price for those items. If the seller doesn’t have those items and knows who does he may refer you to the other seller, but it is doubtful he knows the price.
Why don’t you provide some simple examples.
One caveat, though: If you chart National Health Expenditures as a percentage of GDP for the OECD countries over time back to the Eisenhower era, they march along, gradually increasing in a pack as the world economy grows. There is a point at which the line for the U.S. breaks sharply from the pack and takes on a noticeably steeper angle. It is not 1964-65, when Medicare and Medicaid were implemented. That year shows barely a bump in overall expenditures. It is 1983-84, when DRGs were implemented in the federal programs and coding began to catch on with private insurers. It’s very sharp and definite.
DRGs laid out a ladder to success for the industry. To those here who are asserting that the system of code-driven fee-for-service payments is not the problem, I say look at the chart. There’s your problem.
Thanks for the thoughtful post, Paul. Great point. I hadn’t thought of Parkinson’s Law and its corollaries, but of course you are right.
Your point about social capital is equally on point: “We only need a means to promote, sanction and energize a community by community strategy to manage the social determinants of health at the local level.” This is to name the Healthy Cities – Healthy Communities movement which mushroomed in the 1990s and has simmered along since. The rate driver, though, is economics: Any funding mechanism for healthcare (such as various population health funding mechanisms) that connects the social need to the funding for healthcare will spur a lot of action. And “healthy community” costs are dirt cheap compared to the costs of acute healthcare.
Joe,
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The level of thoughtful, heartfelt angst seems to have mushroomed in response to your post. It seems we had all agreed last fall that its gotten as bad as its going to get. We marginally knew what the issues were and what was coming next….MACRA, the increasing consolidation of healthcare enterprises, and the continuing institutional co-dependency between the providers of Complex Healthcare and the payers of healthcare.
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But now, the level of Paradigm paralysis within Washington is beginning to evolve at a pace that could produce a governance disaster of unprecedented dimensions. One ray of hope. From a unique combination of relationships, I found myself on the steps of the National Air and Space Museum in Washington at noon on the day after the Inauguration, 5 weeks ago. The crowd was everywhere: very well-mannered, friendly and happy. They called off the afternoon march to the White House because there were too many people. If there was any hope for our healthcare industry, it lies in the expertise, good-will, and commitment that exists within the level of social capital that exists, silently, in every community. We only need a means to promote, sanction and energize a community by community strategy to manage the social determinants of health at the local level. The demand for healthcare dollars will never be totally controlled without it. For instance, the annual cost of healthcare for high-risk homeless citizens was $75,000 before and $6,000 annually after the persons accepted supportive housing. ( see JAMA @2 years ago).
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The funding of healthcare must finally acknowledge the fundamental driver for the increasing cost of healthcare: Parkinson’s Law: “Work expands to use the resources available.” The cost of our nation’s healthcare as a portion of our national economy was 6.0 – 6.5% of GDP before Medicare/Medicaid and is now 18% . All, except The Netherlands, of the other developed nation’s use 12% or less of their national economy on healthcare. Releasing the institutional co-dependency between the University Medical Centers and the national health insurance institutions will be required, painful as its likely to be. As a reminder, while in Washington, I happened by chance to walk by the brand new office building for the American Association of Medical Colleges, aka AAMC. Just saying!
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Paul
Easy Batman, you said “pro tip” that means “professional tip”. Which basically means you are giving professional advice. So you should be very careful. You are NOT a licensed medical professional nor should you give out “pro tips”. No matter how long you have been a writer about healthcare or a self-proclaimed healthcare expert. I would never give a pilot a pro tip, even if they routinely push the stick forward and increase power in a stall. I am not a licensed pilot. I actually respect professionals that actually are practicing their profession. You obviously do not. Your response is more insulting than your original article, which tells me you have no idea what you are talking about, and have never walked an inch in the real medical world. You may write about it or discuss it over dinner, but never actually took care of patients. I feel sorry for you, as you probably lost every practicing MD by attacking me. You are obviously very sensitive about your lack of front line patient care experience with your response. As a writer, you did well trying to further disrespect me, but as someone that has worked the past 18 years as a real community practicing orthopaedic surgeon, being there at all times day and night, for my patients, I actually have street cred.
The reason for bundles is to get more for your money, it is to lower costs and get more bargains.
I don’t see any conceivable mechanism that quality would be improved by bundling. In fact, providers might degrade quality by trying to fit services and goods into artificial bundles or by trying to exclude services and goods from artificial bundles.
OTOH, If you can get FFS or bundles or capitation or salaries or global budgets or whatever low enough and reasonable enough then you do not need to care one whit about bundles. You are only interested in health care costs with this logic. Nothing else.
Many docs would not mind being on salaries. Many are on salaries. These are bundles. DRGs are bundles. APCs are bundles. Per diems are bundles. Global budgets are bundles. We deal already with bundles. Whether these are holding health care costs down is questionable. If you are really interested in bundles for cost control, then you have to extend it to Pharma in some way and you have to extend it to administration and management costs and to hospital capital expenditure expenses and all the other input factor costs of health care which includes hundreds of items including nursing costs and malpractice costs and other liability costs.
We all need to get together to do what you want. The whole health care team, not just the docs. It hardly makes sense to aim this plea toward those who are taking 20% of the health care dollar.
Joe, is there any reason that a bundle could not be coded and defined? I agree that every bandage does not need to be billed separately.
Excuse me? Do not accuse me of a crime. You want me to be very careful. You need to be very careful.
I did not practice medicine in this column. I did not recommend any particular course of action for any particular patient. Nor did I say, “we tell every patient you need a new knee … without attempts at all kinds of conservative care and treatment.” I was discussing a course of action that you “routinely advocate.”
If it were an illegal practice of medicine to opine in print that maybe people should consider this course of action rather than that one for this complaint or that one, then all authors of self-help medical, diet, and fitness books would be in jail.
What I did say, quite unlike your caricature of it, was that such an ideal system “might mean your health system not being so quick to recommend a new knee…” This is demonstrably true, as the comment is a description of my own treatment at Kaiser, and a specific program they have for helping people who come in, as I did, demanding a new knee. Kaiser does fewer new knees and hips than other systems, without saying no but simply by fully informing the patient, advocating conservative treatment first while holding out the possibility of replacements if conservative treatment does not work.
How you make an insult out of describing a tendency in the industry that you say you do not do, and mentioning the increased possibility of a treatment path you “routinely advocate,” I can’t even make out. But if you want to be insulted, go for it. Put it on a plaque on a wall somewhere.
It is already happening, though not as fast as it needs to. As you point out “Private payers such as employers have only gradually been getting more demanding, unsure of their power and status as drivers of change ” And individual employees in high deductible plans are asking in advance how much a recommended mri would cost and shopping for a better price…..a WSJ article about GE Imaging mentioned demand shrinkage and margin pressure and GE attributed it to the proliferation of high deductible employer plans. If providers are opaque, they will pay the price with lost business…..if we can expand these kinds of plans where patients/customers can financially benefit.
#1 Templates simplify comparisons. Insurers are experts at risk, the consumer has no idea how how much cost each component contributes to a plan. Templates commoditize so that value is clear and plans can be more easily regulated. There can be templates to satisfy every market need. And when circumstances cause a need for industry change all can step in unison, maintaining order, fairness and security.
#2, #3 The founders of Ebay thought about what feedback would do and luckily for them they patented it. Amazon recognized the concept and did its best to copy the feedback marketplace concept with great success (due to great functionality). The BBB created a business out of threat of negative feedback and succeeded even by actually providing a weak facade of it. When feedback is made customary and anonymous it’s devastatingly effective. It’s all voluntary and people do it the same reason you and I blog; to make an impact.
#4 What we have now is an Orwellian marketplace, where one visits and must surrender the dignity of taking hours of personal information while promised a possibility of finding an overpriced product and no information on how to evaluate it or how it has performed. In a true marketplace one looks forward to visiting.
Actually, you should look at the actual studies, of which there are many. Defense medicine is not at all the major waste of healthcare dollars. The studies are describing the multiple major things done across medicine that are, as I said, “tests and procedures and devices that we really don’t need, that don’t help, that even hurt us.” Things that the peer-reviewed literature show are unnecessary and not helpful, but we do anyway, like complex back fusion surgery for a diagnosis of simple back pain. Like colonoscopies as first-line mass screening for colon cancer. Like the literally hundreds of common medical therapies and pharmaceuticals that have actually never proven their value in comparative testing, let alone cost-comparative testing. On and on.
Good arguments about the defensive medicine, but that’s not what I am talking about.
It’s not possible for me to be a fierce customer of your product, or even a reasonably prudent one, if you get to pick what’s in it and how much each item costs.
I can only be a prudent customer of a product if you can tell me what’s in the box and show me how good it is and what it will do for me. Otherwise? Not possible.
And yet, and yet…I notice that in the latest flurry of attempts at “volume to value” CMS programs, the oncologists and oncology programs over-subscribed, coming in at double the expected number. There is more than one way to skin a cat. Bundles in the strict sense are best for some things, not for others.
The idea “bundles are not right for everything” is not the same as “unbundled code-driven fee for service is the only way.”
#1 I don’t think multiple templates solve the problem you wish solved.
#2 You have to think about what the feedback would do and how that feedback would be utilized.
#3 Presently you seem to want to replace the marketplace with all sorts of ideas. All your suggestions should be voluntary and act as information to other patients. We are seeing a bit of that today and the information isn’t terribly effective.
#4 Online marketplace in healthcare? A possibility in the future but today would be additive to what we have.
Thanks for reading my plan. Regarding “one template,” there can many levels of deductible but what I have seen is insurers that simply randomly mix up deductibles and co-pays for types of items just to declare it a new contract. My goal would be to break the practice of raising the rates of those that renew as the profit (back end) strategy and use lower rates on essentially the same policy for new sign-ups. The consumer then has the choice of switching every year or paying the administration costs (essentially) of those who switched. The regulation needs to promote competition while inhibiting the unproductive type by creating order and clarity.
On the artificial codes, this is already in place. We might as well take advantage of them by attaching relevant feedback to them. A doctor’s visit would prompt questions: 1) How long did it take to get an appointment? 2) Did you get to choose a convenient time of day? 3) How long a wait before you were seen? 4) Did the doctor give detailed examination? 5) Were all your questions answered? 6) Did the advice turn out to be the most cost effective? 7) Therapeutic? 8) Was the prognosis accurate? 9) Would you recommend this doctor for this service to others?
With thousands of these feedbacks catagorized by code and linked to the doctor one would see exactly what the doctor was competent in and what they were not. This along with their fee information would make healthcare the most efficient market rather than the least.
Amazon and Ebay are putting JC Penny and Sears out of business. If the online marketplace efficiency works in healthcare I say we apply it to the legal profession next.
I think insurers should consider offering patients a negative copay to use the most cost-effective high quality provider if the reimbursement rate differentials are large enough to justify it. I’ve heard of a at least a couple of instances of insurers doing exactly that.
Joe, It’s hard to put our goods and services into value bundles. Maybe for a few obvious conditions, like for a hip or knee repair it is OK. But, if we did this for sepsis or even CHF or stroke, we and the hospital and the Pharma would be needing re-insurance. The variation and variety in a patient’s course is too wide. And, even for cancer, do you see the dynamic
flux in treatment alternatives coming out nearly every month in, for example, the National Clinical Cancer Network literature?
“Good for you to point out waste and harmful over consumption of health care … I don’t see “fee for service” as the root cause.”
That is the problem with Joe Flower’s piece above. He blames the wrong things for the problems that he lists. I think we are all knowledgeable about those things. We need the “patient/consumer having a financial incentive to prudently use health care. “
An excellent piece in most respects! Good for you to point out waste and harmful over consumption of health care (so infrequently mentioned by our pundits). 30-50%!!!! Hadler and many others have documented this….and finding ways to pare that back is the key…..but that cannot be done without the patient/consumer having a financial incentive to prudently use health care. That is why I like one of the examples (there are others) of how this can be done: as you say
“here’s a list of high-quality places in your area that do it for what we call a “reference price” or even less. Choose one of those places, and we will pay for everything from diagnosis to rehab. You can choose a place with a higher price if you like, but you’ll have to pay the difference yourself.” With reference prices, the employee or member partners with the payer in becoming a fierce, demanding customer, and prices for anything treated this way come crashing down.”
I don’t see “fee for service” as the root cause. When patients/consumers get a financial incentive for prudent use they will be “fierce and demanding” even in a fee for service environment.
We did a data mining experiment that looked at all of our health insurance claims for all employees. (The Blue carrier reluctantly went along). We discovered that of the 2 dominant health care systems 1 was consistently 15-25% less expensive. I started to press the Blues to help us design a plan that created an incentive for our employees to choose the less expensive provider system…..such as eliminate co pays etc. They resisted, and I moved on to a new job before I could get the change implemented.
With good, sensible tort reform, it seems that at the very least, medical school training might change and practice patterns as developed by the specialty societies might start to reflect less need for defensive medicine. Since the new docs coming out of training won’t have any experience with the prior system, costs could moderate as the newer doctors become a larger percentage of practicing doctors over time. Admittedly, it would take quite some time to have a noticeable impact but you have to start somewhere. The main loser from tort reform would be trial lawyers and I think that’s a good thing. The problem is that they are one of the Democratic party’s core constituencies.
“No it didn’t. That was what the insurance companies decided to do to bring down costs.”
Of course the ACA caused that problem. Patients have to buy insurance from ACA approved insurers. Patients were given little choice and in many circumstances no choice or a Hobson choice.
It was predicted that the ACA would be unsustainable and that insurers would have to cut costs in other ways. Insurers were not permitted to act the way insurers generally act so they were *limited* to changes like narrow panels. If you want to argue about the term *limited* and say being limited is not being forced in this instance, go ahead, but that doesn’t advance your argument.
“ Medicare costs have increased more slowly than costs for private coverage. ”
Medicare has shifted many of their costs onto the hospital, the physician and everyone else along with not counting the costs involved with things other than the payment mechanism. Medicare has not managed the costs of fraud and marginal care. Finally the way calculations are made terribly distort the results. The cost of paying an individual $10,000 bill is very close to the payment of a $1 bill. Medicare has much higher individual bills than private insurers and that makes Medicare look good, but that appearance is illusory. You are comparing apples to oranges.
“ Private insurers? Why aren’t they cutting costs? ”
For the same reason Medicare isn’t cutting it’s own costs and hasn’t for the past 50 years. Government regulations prevent insurers from acting as traditional insurers. Today, health insurance is more like partial pre-payment of healthcare needs.
Ronald, I understand what you say, but I am quite reluctant to tie the hands of market forces and believe one template is good enough with expectation that market forces will push changes for various insurers and groups of patients. The size of the deductible is a personal consideration that the insurer attempts to satisfy. I don’t believe it is the place nor is it adequate to serve the function to allow takeover of policies for those insurers that go under.
I am nervous when we rely upon artificial codes. What is the difference between an office visit with the last digit being 1-5? That number is created by the physician. It doesn’t directly reflect his competence, effort or any of the essential things we look for. It does, however, complicate billing and incentivizes the physician to become an automaton in order to meet the highest payment available.
“Humans (and that includes anyone involved in healthcare or anywhere else) will optimize their incomes. ” This + FFS= Increased spending. This is just simple math.
“The problem with the ACA is that it forced people into the narrow network.”
No it didn’t. That was what the insurance companies decided to do to bring down costs. No one forced the insurance companies into narrow networks. Was it known that they would probably do that to cut costs? Yes. If you have followed health care policy over the last 20 years you know that there are predictable methods by which companies can use market mechanisms to cut costs. Narrow networks was one of those methods. So, the ACA just set up the exchanges. It was the insurers who decided to compete on costs by using narrow networks.
Finally, Medicare costs have increased more slowly than costs for private coverage. I would agree that they have still gone up too fast, but them Medicare has been FFS. Medicare also has obvious ways to cut costs if our politicians wanted to do so. Private insurers? Why aren’t they cutting costs?
Steve
Allan, we agree that the overall answer is to enhance market forces with more patient participation. We also agree on a willing buyer/seller agreement. My way of insuring the contract is clear is by using the ACA idea of standardizing contracts so that there is a template for each type of customer immediate affordability as well as degree of investment desire. This keeps purchases decisions apples to apples and also allows the takeover of policies by any insurer that goes under.
Where the patient is restricted in buying insurance after their higher risk is realized, I put the same restriction on the seller on backing out of the contract in that event. My plan protects the insurer by empowering the patient with visibility even the insurer did not have and would not take time to research. As far as skin in the game, policy templates could have a whatever the optimal combination of deductible versus co-insurance is found to be effective. My way of providing incentive for the patient to chose the lowest cost (most effective) course is to have policy limits on each code, again following a nationally set template. If one is willing to pay for Cadillac coverage they should be able to chose more exclusive (higher cost) providers. These high end buyer would be the ones funding innovation and new experimental products.
A patient on the universal/public level would not get to choose higher level providers unless they can show a deposit, demonstrating they have been self-insuring, and have the capacity to pay, for example, with a 100K balance in an HSA. The bulk of consumers would be in one or two levels in between the Cadillac and the universal.
Please give more feedback after you read my Q&A found here:
https://drive.google.com/open?id=0B84Ov8Kg0YQUVGljWndJbUxIbmc
I am hardly an expert on tort reform, but I think there are some obvious things we could do. The safe harbor one has always struck me as a god idea. I think that venue reforms are important. Malpractice attorneys try to drag cases to places with sympathetic judges and juries known to give out awards. Make cases stay local. We have specialized tax courts, so health courts also strike me a s a good idea. That said, I don’t really expect it to change costs that much, or at least not for along time. In my experience, and seems to be what the literature supports, docs mostly order what they order and do what they do based on their training and experience.
“why should most people with employer sponsored healthcare opt to go to the lowest cost center, the answer is obvious if they have $1000 or more deductible, they want to save their money.”
Ronald, when the individual ends up in a hospital they are generally going to meet their deductible so there is no benefit for the individual in saving money. The insurer who benefits doesn’t gives the insured a part of that benefit.
“Allan I agree with you that the author of this article is not taking into account what could change if there were true price and quality transparency.”
Joe Flower doesn’t take that into account along with a lot of other things because these facts don’t suit his narrative. He is locked into a system design that is run from the top and is not organic. I don’t think he understands human behavior.
You are advocating transparency which of course is paramount to the success of any healthcare plan, but the necessary transparency can’t really exist except in a relatively free marketplace. We can force all sorts of price transparency, but suddenly new charges and new ways of doing business appears. Confusion reappears.
Quality is a different problem. Many times when the physician is recognized as being the top in his field he may already be in decline. Physicians vastly disagree with one another as to what constitutes quality on too many issues. Additionally a fantastic surgeon may be fantastic at certain surgeries and lousy at others. In the end there is a danger as well in ranking physicians for that might push physicians away from the sickest patients. Lots more on quality, but that is enough for now.
I went to your site and downloaded your proposal for later. We have significant agreement on many things and differ on some. I only had time to scan over your material, but I have to applaud the results of your efforts . You touched a lot of bases.
One thing I will mention right off the bat. Insurers are the experts in determining risk. I wouldn’t want to tie their hands and I would want the willing buyer/ willing seller agreement to be used in the development of insurance plans. I would promote a singular plan as a type of template where insurers could add or subtract. The reason for the template would be to make it easier for the patient to understand what is or isn’t offered. I would also place the onus on the insurer if things are not clear. The insurer is the expert and should be the one to make sure that its policy is easiy understood by those paying the premium.
Barry, assuming what you say about private exchanges is correct, the problem is that the ACA with its higher deductibles and copays along reduced panels hasn’t left the average worker in a place where he has money available to increase his out of pocket expenditures. The ACA has killed the ability of many individuals to act on their own behalf.
Steve, narrow networks can save money and some people prefer them to wider networks if that is the case. The problem with the ACA is that it forced people into the narrow network. It wasn’t voluntary. Healthcare is mostly personal so government force should be quite limited.
I prefer choice because no one is more knowledgeable about a person’s personal needs than the person himself. Yes, Steve, you know more medicine than that person, but as long as he is competent he should control his course, not you.
“Why aren’t they clamoring for reference pricing ”
People are clamoring for a lot of things… jobs and higher take home pay being at the top. The employer is an expert in his business, not an expert in healthcare and frequently the costs of change to the employer of both time, money and aggravation are greater than the costs to maintain the status quo. If reference prices work then the real payer would be concerned and most likely lead the charge to change. That person is the employee, but the tax deduction goes to the employer.
“ significant co-pays and deductibles.”
Yes, the ACA inadvertently brought in the marketplace by causing costs to skyrocket alongside of narrow panels and other things that so that there is not much leeway under the ACA for further individual actions to reduce costs. Additionally we know the costs in the coming years for the ACA (if the program isn’t vastly changed or replaced) will explode. We are seeing some of the positive effects of marketplaces, but many of the patients have been divested of their funds by the ACA so they are unable to act.
That money has been squandered. The increase in deductibles would have been better spent if they ended up in HSA’s under patient control and we might have had the development of favorable spending patterns.
“You live in a much different world than I have. … I have seen many docs over the years heavily influenced by what they can bill ”
We don’t live in a different world. We apparently have a different understanding of human behavior and read things differently. Humans (and that includes anyone involved in healthcare or anywhere else) will optimize their incomes. There is no doubt of that. That is one reason the single payer plan known as Medicare, despite monthly changes in regulations to control costs, has been unable to keep costs down. Human behavior is the reason the ACA failed so badly and the reasons for the failure were known before the bill was ever passed, but those passing the bill didn’t read those concerns or the bill. Human behavior is also the reason behind the VA’s failures.
If you wish to correct these problems you have to work with human behavior, not against.
The other tort reform idea that I would like to see is to get malpractice cases out of the hands of juries who can be easily swayed by a glib lawyer, especially if the plaintiff is sympathetic. These cases should be heard and decided by specialized health courts with specially trained judges who have the power to hire neutral experts who can sort through conflicting scientific claims that are well beyond the ken of most of the population.
Malpractice cases generally involve straightforward findings of fact as opposed to weather or not constitutional rights were violated. Defendant doctors want to know that a given case will be decided fairly and objectively on the facts, not emotionally or arbitrarily and that the same set of facts will most likely bring the same verdict across the country.
If we had a system like that in place, after a few years to establish its credibility and fairness, doctors would start to perceive it as for real and conclude that they can safely begin to significantly reduce defensive medicine and its associated costs to the healthcare system. Wouldn’t they?
Allan, when you ask why should most people with employer sponsored healthcare opt to go to the lowest cost center, the answer is obvious if they have $1000 or more deductible, they want to save their money. But in today’s market price is very opaque and quality is practically blind. Allan I agree with you that the author of this article is not taking into account what could change if there were true price and quality transparency. In such a market the overall cost for the hip replacement would be posted as a statistic for that doctor as well as the hospital as well as the rating of 5-7 points of quality by the patient in the months following the procedure. Also if all pricing for all codes were published in an easily searchable form, like doing voice query to a phone app, it would revolutionize healthcare. Also, if there were only one price that would end being captive to the insurer’s network and open all markets to all insurers.
I once had the same view as the author until I realized that easy access to quality rating and price would empower people who had skin in the game to save their skins. I agree there must be universal floor coverage but a charge, even if it is a small fraction of the bill and even if it gets deducted from their public assistance payment. Medicaid should be repealed since anything that one needs to enroll in will not be universal by definition. Drive paid insurance by making tiered care.
If you like the idea you can read more about it on my online petition to Sec. Tom Price. Please give me feedback whether you sign or not. Thanks.
Ron
https://www.change.org/p/hhs-secretary-of-tom-price-one-published-pricing-healthcare
Steve – increasingly fractured care provided by different physicians is NOT value.
Meltoots, you are my hero! I agree with absolutely everything you wrote. So well said, I have almost nothing to add except to emphasize that writing about healthcare is VERY different than practicing medicine. Joe, be careful with your words… you have wandered into dicey territory.
Steve2 – I don’t a think cap on non-economic damages is an effective approach to medical tort reform. I’m not a doctor and have never worked in the medical field in any capacity. I have had a lot of experience as a patient, however, especially over the last 18 years. Some negligence cases are pretty clear cut like wrong site surgery. The big problem area, in my opinion, is the so-called failure to diagnose cases which, I think, account for roughly 20% of malpractice claims. It seems to me that there should be safe harbor protection for doctors who follow evidence based guidelines and protocols where they exist or have sound, documented reasons for deviating from such guidelines when deemed appropriate to do so. For example, if the guidelines call for not recommending PSA testing in normal or average risk men and such a patient later develops prostate cancer that might have been caught earlier if a PSA test were done, there should be no legal basis to bring a case for negligence.
You’re the doctor and the expert though. What do you think medical tort reform that would satisfy doctors enough to induce them to practice less defensive medicine and to be more willing to assume a leadership role in fixing healthcare would look like?
Just do what the ortho guys in our area do. Everyone form into one group. Then refuse to take call. The hospital does not want to lose the income from the ortho cases since the pay so well, so the hospital has to hire docs just to do the emergency cases. No night hours, weekends or holidays.
Steve
Actually there are many studies looking at the costs associated with malpractice, including the costs of defensive medicine, which is actually the majority of costs incurred. I have linked to just one piece which, though older, links to many of the best studies done.
That said, I still support tort reform since I think this is such an emotional issue for physicians. I think if this was resolved it would make docs more willing to participate in broader efforts at fixing health care.
http://theincidentaleconomist.com/wordpress/meme-busting-tort-reform-cost-control-2/
Private exchanges are one approach that employers can use to offer employees a variety of health plan choices. The employer would provide a defined contribution that would likely be sufficient to pay for the least expensive plan and employees could buy a better plan and pay the difference in premium out-of-pocket. A very high percentage of employees would have to participate for insurers to accept the risk as each choice is priced on a community rated basis with no age rating. So far, the private exchange concept has been slow to gain traction.
” However, if the patient had to buy insurnace and pick from companies that offered different prices based in part upon which hospitals are used I am sure more people would gravitate to the less expensive hospital and insurer causing other hospitals and insurers to cut their costs. ”
You have just described narrow networks, which is one of the things conservatives complain about with Obamacare.
With employer sponsored healthcare employers have to pay for at least part of the insurance. Why aren’t they clamoring for reference pricing and why aren’t insurers already offering it? This is not a new idea.
You do realize that people now have significant co-pays and deductibles. In theory they should already care about costs. When transparency of costs is made available, most people don’t even look at the costs. Can link to the studies again if you want.
“The author of this article doesn’t understand that fee-for-service isn’t what causes high costs.”
You live in a much different world than I have. In my world I have seen many docs over the years heavily influenced by what they can bill for, trying to maximize that. It sometimes shades over into the unethical and sometimes into fraud. Provider influenced demand is very real. Do yourself a favor and subscribe to Health Affairs and read over the many studies documenting it. To be sure, fee-for-sevice is not the only reason, but it has been part of it.
Steve
Steve, why should most people with employer sponsored healthcare opt to go to the lowest cost center? There is no benefit to the patient. However, if the patient had to buy insurnace and pick from companies that offered different prices based in part upon which hospitals are used I am sure more people would gravitate to the less expensive hospital and insurer causing other hospitals and insurers to cut their costs. Competition allows people to pick and choose driving prices down. The author of this article doesn’t understand that fee-for-service isn’t what causes high costs. It is the lack of competition created by many of the policies the author supports. I say let all forms of medical care compete with one another and let the best form(s) win and prosper.
Every time I hear the statement that at least one-third of care is wasteful or unnecessary, I’m reminded of the corporate CEO’s who think that half of their advertising dollars are wasted. The problem, of course, is that they don’t know which half. Even if defensive medicine were not an issue, I don’t think there are many doctors who would tell a patient that the test he’s about to order is wasteful and unnecessary but he’s going to order it anyway.
Indeed, one time, after a brain an examination related to a complaint about balance, the doctor told me that there was a test that he could order but won’t because even if it came back positive, he wouldn’t advise doing anything about it, at least for now.
I suspect that most tests that academics view as wasteful are largely driven by the defensive medicine culture caused by our overly litigious society. Malpractice litigation and the threat of it is nowhere near the issue in other countries that it is in the U.S. I’ve been told by doctors in the past that defensive medicine increases the cost of their medical decisions and recommendations by15% at a minimum. Liberals think it’s closer to 1% because they only look at the cost of malpractice awards and malpractice insurance costs. They don’t get it in my opinion.
Cute article. But lets point out a few things:
1. Wasted tests: Nearly every patient I see wants EVERYTHING done. If they don’t get their MRI for their achy knee, they want to sue. Which also leads me your waste argument. Fear of devastating lawsuits only takes one. When you are threatened with loss of MANY millions, and at times MORE than what you are insured for, you feel a lot less bad about ordering that MRI for them. Don’t forget, I can get sued for a followup visit for a painful knee from a Medicaid patient for MILLIONS, even though the visit only pays me 25 bux. So there is NO way to talk about waste without real talk about malpractice reform.
2. Price: Every single thing that comes through a medical office or hospital has to be “Certified” including the all the saline, not to mention, EHR, staff, etc. That all adds MAJOR cost. If I could just whip up a gallon of water and salt and give it to you without losing my license, we would do that.
3. Payments to MDs: If you fall down today, and break your hip. You ask me to come in from home, evaluate you, discuss your options, then do your surgery all for about $1000 PLUS 90 days of care after. Yep, try to get your bumper fixed for less than $1000. You really want to pay me less? Really? 14 years of training, Board Certification, 18 years of experience? $1000 so you can be out of pain and walk again? Worth it to you? I wonder. And don’t forget this. 20 years ago there were 7 groups at our hospital. Now there are 1. Mine. We go, you are in BIG trouble. I could decide NOT to accept your insurance, or medicare or medicaid, and then you would have to pay me what I want or jump in a car or ambulance and move on and good luck with that. But I still accept that $1000 for now. Every day I hear of people leaving medicine, retiring, and worse suicide. These foolish, nonsensical “value” based reporting buzzword care things will do and never have been shown to improve anything.
All they show is who is better at reporting not actual outcomes or care.
4. Value based buzzword care. Play it out to the end with these. ACO’s? Failed already. Even the original gangster, Dartmouth, who thought they were the shiznit, as they thought these up, quit their failed ACO last year. Bundles: these too will fail. Who would operate on anyone with medical problems if I get penalized for increased care after surgery. Remember, there are not many of us left. If you have diabetes, heart issues, etc, forget it, you may need more care and there goes the bundle, you cost too much. Play it out. Those will never work.
5. Pharmaceutical companies and PBMs, have really done damage to costs. As an MD, our costs have skyrocketed for everything, yet our fees paid by Medicare have only gone up 3% total in 10 years. where as everything else has increased almost 10X that. Pharma has 100X that. If you want to reign in some cost, start there.
6. Kaiser has failed in everywhere, except in a a very few select areas. They just went bankrupt in Ohio and closed. People know when they are pushed off, getting ignored, etc. That is the “value” you want?
7. There are better MRIs than others by the way. There are better magnets, images and some really crappy ones. Why would I ever send a patient for an MRI that I want to see what is going on to a crappy one? We all know which ones are good and not.
8. Finally, its an insult and illegal for you to practice medicine by recommending nonoperative care for anything. In fact, PT NSAIDs, etc can help some patients and we routinely advocate that, but to think that we tell every patient you need a new knee is ridiculous, without attempts at all kinds of conservative care and treatment. You have NO right to give PRO tips about patient care if you never treated one patient and certainly it does not “OFTEN” work. Be VERY careful advocating for treatment of any disease or condition if you are not qualified to do so.
The biggest storm about to happen is that the hyper-regulatory nightmare that ONC and CMS has laid upon with MACRA and the last remaining front line providers has driven too many out of practice. This has caused a major shortage of MDs already. As practicing MDs ,we, like everyone else, like to be paid for our work, we do have a “do no harm” motto and a malpractice check rein on us. We trained to care for you, using all methods of care at our disposal. There are always a few bad apples, but the VAST majority of practicing MDs are caring for people as calling, and to care for those in our community. But we will not be abused. Once you drive us out, we don’t come back. And that is the bigger crisis you should be concerned about.
Medicare already pays low prices and it pays for bundles of care called DRG’s. Medicaid pays even lower prices. Indeed, hospitals complain all the time that Medicare reimbursement rates don’t cover their fully allocated costs for providing care and Medicaid rates don’t even come close to doing so. The main reason the system works as well as it does for hospitals is that there is still a significant private commercial sector to shift costs to.
Historically, employers, especially large self-funded employers, wanted happy employees. Competition for good employees included offering comprehensive health insurance benefits with a broad provider network. Employees, for their part, generally did not understand that they were effectively paying the full cost of those benefits in the form of lower wages than they would have otherwise been paid. They perceived their cost for the insurance as limited to their own out-of-pocket (pretax) contribution toward the premium which was often quite low and sometimes even zero. The employers didn’t want Blue Cross, United, Aetna, Humana, etc. to fight too hard with hospitals over payment rates if it risked making their employees unhappy. One of the less heralded good provisions of the ACA is that employers are required to disclose how much they paid for health insurance on the employee’s behalf in Box 12-c of each employee’s W-2 tax form. That’s a good idea that should be sustained. Many employees claim to be shocked when they see the number.
As for reference pricing, it’s an idea that I like and support. However, it’s only useful for discrete tests and procedures that can be scheduled in advance. A big part of the cost and pricing problem in healthcare relates to care that must be delivered under emergency conditions. Doctors need to run tests just to arrive at a diagnosis which they, hopefully, can then treat. That dynamic does not lend itself to binding price quotes in advance. That’s why I think there needs to be special rules governing how much can be charged for care that must be delivered under emergency conditions. My suggestion is 125% of Medicare.
There are numerous other strategies for cutting healthcare costs. My favorites include sensible medical tort reform to reduce defensive medicine, better use of data analytics to combat fraud, convincing more people, especially among the elderly, to execute a living will, advance directive or a POLST that lays out what care the patient wants and doesn’t want in an end of life situation. We deliver a lot futile or marginally useful end of life care that the patient doesn’t even want but can no longer communicate that fact. Price transparency is also desirable. That doesn’t mean the ridiculous hospital chargemaster rate that virtually nobody actually pays. It means the actual contract reimbursement rates that hospitals agree to accept as full payment from insurers or a cash price for the uninsured that fairly reflects the value of care delivered and the fully allocated cost of providing it.
1) We post prices for our hospital. We are the lost cost provider in the area. We have had very little response. Just doing this is not enough.
2) In concept I like the idea of reference pricing. However, insurance companies could have been doing this all along, but they have not. Why? I suspect this is because people really don’t like narrow networks, which is essentially what this amounts to. They want to see the Doc of their choice or go to the hospital of their choice. Often cost is not the primary determinant. Insurance companies are profit making entities. I suspect they have already figured out that they risk losing market share if they do this. Of course, if this were a regulated requirement they would have the political cover necessary to do this, but that won’t happen.
3) Fierce customers? Where are these coming from? When I took care of a nationally syndicated libertarian economist’s wife, there was nary a word about costs. It was just “do everything”. This will take a massive change in culture.
4) Otherwise, I actually like a lot of these ideas. (Don’t want to sound too critical.)
Steve
Yep. That’s market economics at it’s best.
America’s system is rationing by affordability — those with the most assets get the best of everything, those with less settle for less. Further down are those who can just afford the basics and just before the safety net for destitution (Medicaid) there is going to the ER when needed, hoping nothing serious makes it worse.
In many ways dental care illustrates rationing according to affordability better than health care. We live with that (except for a few fatalities from spreading infections — QALY losses from dental issues are statistically small) which is why a fourth of all Medicare-age Americans no longer have any of their natural teeth.