Wednesday, February 20, 2008

Why All the Major Candidates' Health Care Proposals Will Make Things Worse

The Oracle is occasionally asked what he thinks of the health care reform proposals being set forth by the various presidential candidates. The short answer: not much.

The major problem is that all of the candidates only give attention to one side of a two sided issue. Americans are concerned about two matters related to health care coverage: 1) access to insurance coverage; and 2) health care costs. The candidates are giving considerable attention to the issue of universal, or near universal, access. No one is paying real attention to cost containment. While some candidates pretend that expanding coverage will in itself help to contain costs, that would be, in the immortal words of Bill Clinton, a fairy tale, believed by people such as his loving spouse. If anything, creating a universal entitlement to health care will increase demand for services and, thus, increase costs. The most likely outcome of the kinds of health care reform being proposed is nothing more than the shifting of ever increasing health care costs to taxpayers. In response to those increasing costs, the options will be either to increase taxes at a pace to keep up with the rising costs or to ration care (either by denying access to services or by ratcheting down prices to a level where there will be an insufficient number of practitioners available to provide the services). Neither option is terribly palatable.

There are some things that can be done that would help on the cost side of the ledger. These are not as exciting to the general population as is providing universal coverage. However, they would be more helpful. Because of the government's role in creating some of the current problems, federal action is required to fix them.

1. Price transparency. Over the last few years, the concept of consumer directed health care has gained some attention. The idea has been that if consumers have a stake in the cost of their health care, then they will make decisions based on cost, just as they do for other types of products and services. While that is a sound concept, the idea has had limited success, largely because patients can make neither heads or tails of the health care pricing system.

Indeed, it is a bizarre and inefficient world. What medical providers bill has absolutely nothing to do with what they expect to be paid. I was reminded of this recently with my own brief hospital stay. The hospital billed me something around $19,000. However, after the insurer adjustments, the total payment was closer to $3,000. Medical providers bill in such a way as to maximize reimbursement under various payment systems (Medicare, their various group health managed care contracts, work comp, auto, self-pay, etc.). This results not only in confusion for health care consumers, but also in additional administrative complications in processing the bills. Rube Goldberg could not design a more complex system of reimbursement.

Health care providers will sometimes respond that it is not possible to price an appendectomy in the same way that one prices other products and services, but that is silly. It is certainly possible to establish prices that are applicable to typical contingencies. If one takes his car in for an oil change, and it turns out that he also needs an engine overhaul, he understands that some additional costs will apply. In the same way, it should be possible for providers to establish understand pricing mechanisms that most patients could understand in making health care decisions.

However, it is not the way it is currently done, so there will be tremendous resistence to change.

2. Paying for the right thing. The health care system, following the lead of Medicare, pays for the wrong things. It pays for tests and diagnoses. It does not pay for patient care and patient education. And, the tight price controls of the government programs, primarily Medicare and Medicaid, and the various managed care schemes that largely follow them, result in cost shifting. As a consequence, costs are artificially higher in unregulated areas. This inevitably leads to calls for further regulation.

3. More standardized, evidence based medical practice. People trust their doctors more than their insurance companies -- often rightly so. Too often, companies that claim to be "managing care" are in actuality only in the business of managing costs, without adequate regard to care. That being said, payers often deny coverage for treatment requests by physicians for good reason. The lack of attention given to evidence based medicine by many medical providers is absolutely frightening. Too many tests are ordered and expensive surgical procedures recommended that are simply not supported as constituting best practices by medical research. While medical doctors will frequently complain that mandates to practice evidence based medicine is nothing more than "cookbook medicine," the fact is that there is too much variety in medical practice that results in poor patient outcomes.

If the politicians leading the way would address these issues, rather than making promises to cover more people, costs would be reduced, and more people would be able to afford coverage.

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