System must change dramatically to improve outcomes, physician says
By Caroline Poplin, M.D., J.D.
MedPage Today, Sept. 28, 2015
For the last 30 years or so, Americans have pondered the U.S. healthcare cost conundrum: all other developed countries spend significantly less than we do on healthcare — whether that’s measured as a percentage of Gross Domestic Product or per capita — yet achieve better outcomes and cover all their residents. What is our problem?
As readers know, one needs a correct diagnosis to achieve a successful treatment.
In recent years, U.S. health policy experts have advanced a novel explanation: our over-generous insurance plans, our fee-for-service reimbursement system, and our failure to manage healthcare providers all generate huge waste — up to 30% of total spending — mostly in overutilization of services that are of low value, or no value, to anyone.
For example, classical economics predicts that if a product is free at the point of service, consumers will demand an unlimited amount. (Of course, even fully insured patients don’t regard healthcare as exactly free — they have already paid substantial premiums, and may wish to get something for their money besides peace of mind.)
Nevertheless, analysts on both sides of the political spectrum insist that “healthcare consumers” — that is, patients — need more “skin in the game” at the point of service — hence policy leaders firmly oppose “first-dollar” coverage, Medigap plans (they cover co-pays and deductibles for Medicare beneficiaries who purchase them), and so-called “Cadillac” employer-sponsored insurance plans, which under the Affordable Care Act (ACA) will be taxed at 40% starting in 2018.
With their own money at risk, the theory goes, patients will request only truly valuable services, and will shop for the best price — just like buying a car.
On the supply side, policymakers call for radical reform of the reimbursement and delivery of healthcare. Reformers believe that fee-for-service reimbursement encourages doctors and hospitals to maximize the volume of services. Instead, they should be paid only for “value.” Ideally, payers should pay providers “capitated” fees — a fixed fee (maybe risk-adjusted) for each patient to cover the cost of his or her care — which will force providers to practice with maximum efficiency.
The great appeal of this approach is that less care is better care: reducing care generates great outcomes while simultaneously lowering costs. Note that American analysts rarely mention price: they assume that market competition will drive down prices, or that fewer services will reduce overall cost even if prices stay the same.
Reformers wasted no time putting their theories into practice: both Medicare and the ACA authorize pilot projects based on this novel, market-based theory.
So far, results have been mixed: some improvement in selected “quality” measures, less success on reducing cost. This should not come as a surprise. While American reform theory may be elegant, its underpinnings are weak.
For example, a 2012 comparative study by the Commonwealth Fund raised serious questions about the overutilization hypothesis: the fund found that the U.S. “ranked at the bottom for the number of [per capita] doctor consultations … had shorter hospital stays,” and “a smaller number of hospital beds.”
Nor do increased out-of-pocket costs to patients selectively reduce their use of low-value services. In fact, a classic RAND study in 1982 demonstrated that when costs go up, consumers cut back on all medical services, valuable and wasteful alike. (This is not a problem for insurers, of course.)
Finally, competition rarely reduces the price of healthcare services or health insurance in the U.S.
In general, competition only drives prices down to marginal cost under specific conditions: there are so many suppliers and consumers that no one can affect price; consumers can easily switch from one supplier to another; everyone has complete information; and the product is fungible (all the same — think gasoline) or easily compared (groceries).
In many parts of the U.S., however, healthcare markets are limited (only one or two hospitals), or health insurance markets are limited, or both. Products are complex and difficult to compare. There may be competition, but it is usually on “quality,” not price. Indeed, patients often pay different prices for the same service, based on their insurance plans. And the situation is only getting worse as mergers among large health insurers and hospital chains increase consolidation in both markets.
American health costs are high because the for-profit system has only driven prices higher: radically restructuring healthcare delivery and reimbursement is unlikely to change that. Indeed, one could argue that the U.S. healthcare community favors the new theory precisely because it allows prices — and profits — to stay high.
Other developed countries fare better than we do because they keep healthcare prices reasonable, by regulation or negotiation. Insurance is public, non-profit, or tightly regulated. Insurance benefits are comprehensive and largely standardized, reducing transaction costs and confusion, while ensuring necessary care. Meanwhile, reimbursement remains mostly fee-for-service, and healthcare delivery remains decentralized.
We can’t achieve European results without European methods. We should build on traditional Medicare, which currently regulates fees for doctors and hospitals. Congress should authorize the Centers for Medicare and Medicaid Services to negotiate prices for drugs and other medical services, and then gradually extend Medicare to younger Americans.
Indeed, if we believe that all Americans should receive adequate healthcare, “Medicare for all” may be the only system we can afford.
Caroline Poplin, M.D., J.D., is an attorney and internist in Bethesda, Md. She is a former staff internist for the National Naval Medical Center, and currently practices medicine part-time at the Arlington Free Clinic in Virginia. She also consults for law firms on Medicare and Medicaid fraud.