If competition the way it is structured at present actually drives the cost of health care up rather than down, what would bring lower costs? What provisions in a “health reform act” would actually drop costs in health care? Let’s leave aside for the moment all the myriad other arguments – some might be seen as too much government intrusion, some would be cripplingly difficult for providers, and so on – and just focus on cost. Given the real structure of health care markets in the United States at this moment, among the various options available to lawmakers, what could be written into federal law and regulation that would actually reduce cost?
Some of these changes are massive, some would be invisible to those outside the industry, but all could be legislated or regulated, and all would “bend the curve” toward lower costs. Choose any you like. They would all have some effect. Collectively, they would have a massive effect:
- Sell health plans only through exchanges: Exchanges (including the Federal Employees Health Benefit Plan) promote direct competition between health plans by forcing them into direct, standardized, head-to-head, benefit-by-benefit price comparisons between plans. In addition, they eliminate commissions paid to the plans' own sales force and to third-party re-sellers.
- Extend Medicare to the 55-and-older age group: This is the most expensive part of the population covered by private insurance. Covering them through Medicare means forcing providers to take Medicare rates for this expensive population.
- Pass a “robust” public option: All providers must take its payments as full payment, rates tied to Medicare rates (perhaps plus a percentage), with the Medicare rates decided by an independent rate-setting commission.
- Limit medical loss ratios: Many European countries dictate that health plans must return 85% or 90% or 92.5% of the premium paid in as medical services paid out. U.S. health plans, in contrast, compete on (and brag to Wall Street analysts about) how low their medical loss ratio is. Some are as low as 60%. Mandating that at least 85% or 90% of premiums must be paid out in medical services would cut health plan profits, force health plans to streamline their operations and reduce transaction costs, reduce the amount diverted to profits, administration and marketing, and lower premiums.
- Negotiate drug prices: Allow the federal government (the world's largest buyer of pharmaceuticals) to negotiate prices for life-saving drugs.
- Reform malpractice : Our adversarial system of dealing with malpractice costs us, directly, only about one half of one percent of medical spending. But the extra tests and unnecessary procedures of "defensive medicine" cost an estimated additional 3% – $60 billion per year, an amount equal to most of the cost of extending coverage to all Americans. And still most victims of real malpractice are left without any help or compensation at all, most actual medical mistakes pass without comment, and most of the few really "bad" doctors out there are still able to practice medicine unhindered.
- Create more docs, more clinicians: Increase the supply of medical service by expanding medical and nursing school enrollments, reducing barriers for foreign medical school graduates, reducing internship requirements, and allowing nurses and techs to perform more procedures.
- Bundle: Many parts of health care could be “bundled” into coherent products – a replaced hip, an uncomplicated birth, a cornea transplant, diabetes management – from diagnosis to re-hab, counting all imaging, drugs, everything. Payers should pay for these as single payments, just as you don’t pay the auto body shop for each sheet of sandpaper or quart of paint, but for the whole job. This would drive providers to discover the most efficient way to do it.
- Publish outcomes: There are comparable measures of quality that do not penalize places that take more complex or difficult cases. Establish standards and put all the statistics on the Internet.
- Publishing prices: You want a new hip? Here’s what it costs at each of these institutions, here is their clinical quality outcome rating, here is their customer satisfaction rating, right there on the Internet. This is true competition that would drive down prices and drive up quality.
- Ban discounts: Counterintuitive? Perhaps. Any CFO of a health care organization would tell you that their “master charge list” is a phantom made up only for negotiating discounts, and the discounts are all over the map – so no one can tell you what the “real price” of any part of health care is. This means that competing on price at all is very difficult, if not impossible. “Common carrier” rules in communications and transportation dictate that the price is the price, and the little buyer pays the same as the big buyer. This would massively transfer risk to the providers to get their costs under control and get their prices right.
- Give a premium to integrated “accountable care organizations:” All the organizations consistently put up by reformers as good examples of giving the most and best health care for the dollar, such as Mayo, the Cleveland Clinic, Geisinger, Group Health of Puget Sound, Kaiser, and Health Partners of Minnesota, are structured differently from the rest of health care. The doctors are on salary, or share profits in the whole enterprise. Many of these organizations are “capitated:” they cover everything for a set monthly fee. There is no encouragement to do anything unnecessary, and every encouragement (since they are in competition) to do whatever actually works for better health. They do good, conservative medicine in a collaborative team-based style. We cannot mandate the growth of such organizations, but we could give an extra 5% or so to encourage their growth.
- Ramp up comparative effectiveness research: Traditional testing asks whether particular new drugs and therapies are safe and effective. It doesn't ask whether they are more effective than an existing drug or therapy, or just as effective but more difficult, invasive, or expensive. In these "gray areas," doctors have great influence over the patient in choosing the therapy, and they tend to choose the therapy that will make them the most money. For instance, back fusion surgery for ordinary chronic back pain has been shown in the peer-reviewed medical literature to be no more effective than much-cheaper (and safer) painkillers, weight loss, exercise, and physical therapy. Yet this type of surgery still thrives. Comparative effectiveness research would help narrow these expensive "gray areas."
- Increase subsidies for digitization, tied to productivity improvements: There are huge inefficiencies in the actual practice of medicine. No one can improve on them until the people running health care can actually track what they are doing, in detail. In something as complex as health care, that means total digitization, like any other business.
- Subsidize automation: Many things in health care would be done much more efficiently by automation, from lab work and pharmaceutical distribution to tracking inventory. Today’s system does little to encourage such automation – instead,it actually supports the inefficiency.
- Standardize and mandate standard checklists: Many parts of health care have established pathways that are clinically proven and widely published in the medical literature, yet followed only at the clinician’s whim. These are not matters for the doctor’s judgment, these are matters like washing your hands between patients, fully draping a patient for a central line placement, getting clear verbal confirmation from everyone in the surgical suite that they agree on who the patient is and what the operation is for. Standard pathways, and simple feedback mechanisms like checklists to make sure they are followed, are still not common practice in health care. If regulations made them mandatory, following them would save billions of dollars in fighting infections and having to re-admit patients to the hospital with problems that could have been prevented.
- Give warranties: You define the job and put a price on it, now back that with a warranty. Today, if I have an operation, and get an infection from the operation, or it has to be done over, the provider actually gets paid for taking care of the problem. With a warranty, I (and my insurer) would pay nothing. This would drive the risk for quality back on the provider.
None of these choices is “radical” in the real world of health care. Each has been proven, in practice, in some part of the current market. Each is practical, not just theoretical. Each could be done with current technology if we decided to do them. Most could be done without any massive new bureaucracy, just from a tweak here and there in the rules, undoing rules that have been set for the convenience and profit of payers and providers, and setting them instead to force them to compete on actual value for the patient and for the nation.
We could drive down the cost of health care while driving up quality and serving everyone. How much could it be driven down? The evidence (from other countries and from variations in our own market) says that we could do health care in the United States, with full choice and higher quality than today, for everyone, for half to two thirds of today’s cost.
Wait a gosh darn minute!! What is this? Rational discussion of real possibilities??!?! Aren't we supposed to be spewing fear uncertainty and doubt? This sort of rational discourse shall not be tolerated. [end sarcasm] Thanks for the thoughtful list.
Excellent suggestions. I would only add the suggestion to increase the supply of medical service by expanding medical and nursing school enrollments, reducing barriers for foreign medical school graduates, reducing internship requirements, allowing nurses and techs to perform more procedures, etc. I believe supply of medical service is artificially constrained by medical schools, internship requirements, and other barriers to entry. As we all know from Economics 101, limit the supply of any good or service and the price goes up. I would not do this however without some mechanism for making quality or results more transparent.
R. Eller
30 years in healthcare industry
Actually, Rand, I think you are right, and you are not the first to suggest this. I am going to add that as another point. Thanks.
On Sep 21, 2009, at 9:55 AM, wrote:
Great list, Joe. Here are some other ideas:
http://tinyurl.com/npr2sq
I can assist with driving down costs even further. I have a network (virtual) that would permit Doctors to not have to purchase any hardware whatsoever. All they would need is an internet connection. They would save on:
electricity costs
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no on site IT support
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no upgrades
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Jim Peterson
732.789.3692
Driving down health care cost seems to be out of reach and may well be until the cost of getting new products become easier. We just received a UK Patent GB 2432314, for the relief of Diabetic Neuropathy, Arthritis, Shingles and others by a newly discovered method of pain relief until a cure can be found but find ourselves with empty pockets to fund it any further.
Everything that I've read would be better than what we have now, but so long and complicated.Why not something as simple and easy as universal single payer system, free up employers to hire people again without the burden of paying for their healthcare coverage. When people are working I'm sure they wouldn't mind paying a 5 or 6 percent healthcare tax to finance the program, also use the money that is wasted on medicare and medicade would be more than enough to pay for it. That would fix the economy and healthcare.
Oh, the money that would be saved with the health insurance compannies out of the picture.
Then congress can go to work and equalize everything so doctors, drug companies and healthcare institutions will stop robbing everybody.
I started an online petition trying to encourage the people of this country to take charge of the healthcare issue, and it was completely ignored.
We are suppose to be living in a democracy, but we let our elected officials dominate us by telling us what we can and can't have, what they think is best for us instead of demanding what we want, and kicking them out of office if they don't produce. We act as though we live under totalitarian rule, it's disgusting. We need to wake up and take charge of our country before the politicians destroy it.
A quick read of your ideas seems to leave me with the idea that the Reform Bills passed to this point are each a few thousand pages too filled with regulaton to be able to reduce much less improve health care. That's probably why most Americans would like to start over. Your ideas could be easily brought to the medical market place with open competition throughout the system and across the country. It should be simplier, but politics will never allow that.
Keep up the good work to make life better.
I am really pleased to have run across your work. I have written at some length about the health care issues, and sometimes I despair over the seemingly intractable contention, and the ascendancy of what I call of late a “political idiocracy” that seems to shut down rational discourse, in particular as it relates to health care.
I have read some of your work and i am confused about some things. I am a health insurance agent so i see when and how our healthcare system works, and when it does not work. I am not a healthcare provider but i hear from a lot of clients and they share both positive and negative experiences with me. Having said this, i think that some of your ideas are right on, and others are way off. Here is MY opinion, i only offer it as food for thought. On your Suggestions for driving down costs:
1. Sell health plans only through exchanges: Bad idea. California has exchanges that are double the price of plans sold out of the exchanges. Exchange plans are used and abused because they can not prevent adverse selection ( people switching from low cost plans to high cost plans when they get sick). Also, you have way less plan options through an exchange, do you really want to limit health insurance options…? As an agent, it is my responsibility to show all plans and promote head to head competition. People seem stuck on this idea of an exchange, i would rather cut out all agent commission before standardizing plans and putting them into an exchange. I think when people can sit face to face with an agent, discuss their concerns, and an agent can guide them through the process, the outcome will almost always be better than someone navigating an exchange.
2. Extend medicare to the 55-and-older age group: Bad idea. Medicares low reimbursments drive up the cost of private insurance. Placing another huge segment of the population on medicare will only make the problem worse, and drive up the costs of private health insurance plans. It is true that older age segments of the population account for a huge majority of health care spending per capita, but health savings accounts might help, and also lifestyle changes. Otherwise, you cant really change the fact that our bodies start to breakdown as we get older. Why put the people who need healthcare options the most on a goverment plan that has a huge budget deficit. I guess i just cant see the logic behind this suggestion.
3. Pass a “robust” public option: I think that it would be mismanaged, corrupted, add to the deficit, and drive down the quality of care. I want everyone to get healthcare, and in this country, hospitals cant turn people away so, i dont know why we need a public option. Private insurance already pays for the people who do not pay for coverage. Hospitals and providers simply pass on the cost to paying customers. why add another goverment agency to handle this. Its just not necessary.
4. Limit medical loss ratios: I dont think we should compare ourselves to Europe, that is just low. I think companies should be allowed to run their business the way they want, and let consumers decide how much they want to pay. I think allowing carriers to sell insurance accross state lines would help bring in more efficient carriers and provide a good source of competition.
5. Negotiate drug prices: our goverment sucks at negotiating, look at all our trade deals. why would we allow goverment officials to negotiate with the smartest, sharpest people from the health care industry, i wonder who will get the better deal. probably not our goverment, and the people will be fleeced big time.
6. Reform Malpractice: Probably a good idea, but like you said, may have little impact on reducing health care costs.
7. Create more docs, more clinicians: i think this is a good idea. our goverment should subsidize schools and scholarships for people who want to be medical providers.
8. Bundle: this is smart. i have not heard this idea before, but i think its great.
9. Publish outcomes: I think this idea could be bad. Here is why: doctors with bad outcomes will start taking healthy patients to bring their ratings up, it happened in New York. Now you have healthy people paying for procedures they dont really need so the Doc can boost his positive outcome…..I think this will get abused.
10. Publish Prices: Along with Bundling i think this is a smart idea. I think healthcare is the only industry where people pay for services that they have no idea how much they cost.
11. Ban Discounts: If private insurers have to do it, then so does Medicare and Medicaid.
12. “accountable care organizations:” i think they keep costs low and do a great job at simplifying our healthcare system for a lot of consumers, however sometimes they restrict patient choices, which usually results in bad outcomes. I think they are great for some people, but not for all.
13-16. probably not needed.
17. Warranties: smart, but it will drive up the price of care. Doctors will be practicing “defensive medicine”.
i got tired of typing there at the end.
Here are my ideas on how to drive down healthcare costs:
Reduce the number of uninsured and underinsured by securing the border, and reducing the number of people on medicare and medicaid. With more paying customers hospitals and doctors wont have to charge as much.
Require everyone to purchase at least catastrophic health insurance.
Lower taxes and regulation on the healthcare industry. Eliminating SOME regulations would decrese prices tremendously. Taxes, I think the goverment makes a bigger profit than the insurance carrier does, at least the carrier can balance the books at the end of the year. Plus if the industry had lower taxes a lot more companies would be motivated to work in it.
Obviously i am a conservative, and hopefully my ideas wont be labeled as hurting the poor, or hateful, or fearful. I feel my ideas are simple and cheap, and they would have a huge impact on healthcare costs.