By Steven Brill – Time Magazine Jan 19 2015. Author of America’s Bitter Pill
The MRI has become a symbol of profligate American health care – a high-tech profit machine that had become a bonanza for manufacturers such as General Electric and Siemens and for the hospitals and doctors who billed patients billions of dollars for MRIs they night not have needed. There are 31.5 MRI machines per 1 million people in the US but just 5.9 per 1 million in the UK.
America spends $17 billion on artificial knees and hips, which is 55% more than Hollywood takes in at the box office. America’s total health care bill for 2014 was $3 trillion. That’s moe than the next 10 biggest spenders combined: Japan, Germany, France, China, the UK, Italy, Canada, Brazil, Spain and Australia. All that extra money produces no better, and in many cases worse, results.
We spend $85.9 billion trying to treat back pain, which is as much as we spend on all of the country’s state, city, county and town police forces. And experts say that as much as half of that is unnecessary.
We’ve created a system in which 1.5 million people work in the health insurance industry while barely half as many doctors provide the actual care.
And all those high-tech advances: pacemakers, MRIs, 3-D mammograms – have produced an ironically upside down health care marketplace. It is the only industry in which technological advances have increased costs instead of lowering them.
When it comes to medical care, cutting edge products are irresistible and are used – and priced – accordingly, The incomes of industry executives continued to skyrocket even during the recession and the president of the Yale New haven Health System made more than the president of Yale University. They prosper from a dysfunctional health system – their salaries and the operating profits enjoyed by their nonprofit, non-tax paying institutions. Why the outrageous charges – $77 for a box of gauze pads or hundreds of dollars for a routine blood test – that can be found on the chargemaster, a massive menu of list prices used to soak patients who did not have Medicare or private insurance, How can they explain those prices. Explain charging the only to the poor and others without insurance, who could least afford to pay.
1. Why US Health Care is So Hard to Fix
Health Care is America’s largest industry by far, employing a sixth of the country’s workforce. And it is average Americans’ largest single expense, whether paid out of their pockets or through taxes and insurance premiums. How the US spent years trying to overhaul this vast portion of the economy, and still left the US with a broken-down jalopy of a health care system is an irresistible tale.
The story of Obamacare is about politics and ideology. In a country that treasures the marketplace, how much do we want to tame those market forces when trying to cure the sick? And in the cradle of democracy, Washington, how much taming can be done when the health care industry spends four times as much on lobbying as the No. 2 spender, the much feared military-industrial complex?
It’s about the people who determine what comes out of Washington – from industry lobbyists to union activists, from Senators tweaking a few paragraphs to save billions for home-state industry to Tea Party organizers fighting to upend the Washington status quo, from turf-obsessed procurement bureaucrats who crashed the government’s most ambitious Internet project ever to upend the Washington status quo, from turf-obsessed procurement bureaucrats who crashed the government’s most ambitious Internet project ever to the selfless high-tech whiz kids who rescued it, and from White House staffers fighting over which faction among them would shape and then implement the law while their President floated above the fray to a governor’s staff in Kentucky determined to launch the signature program reviled in their state.
When thrown into the mix, fear became the element that brought a chronically dysfunctional Washington to its knees. Politicians know that they mess with people’s health care at their peril.
But when you as an individual using the system, you wonder if whether one test was enough and what the chargemaster cost for two would look like. As far as you are concerned, they could have tested your blood 10 times a day if they thought that was best. They could have paid as much as they wanted to that nurse’s aid to that woman who flawlessly took your blood or to the doctor performing your surgery. When you are ill, to ask how much things were costing seems beside the point. You have no inclination to be a savvy consumer. You have no power, only hope, and appreciation when things turn out right. And you certainly don’t want politicians messing around with cost-cutting schemes that might interfere with result.
That is what makes health care and dealing with health care costs so different, so hard. The Obamacare story is so full of twists and turns – so dramatic – because the politics are so treacherous. People care about their health a lot more than they care about health care policies or economics.
It’s not that this makes prices and policies allowing – indeed encouraging – runaway costs unimportant. When illness brings you into the system, you gains some understanding firsthand what the caregivers who work into that system do every day. They achieve amazing things, and when it’s your life on the receiving end of those amazing things, there is no such thing as a runaway cost. You’ll pay anything, and If you don’t have the money, you’ll borrow at any mortgage rate or from any payday lender to come up with the cash. Who hasn’t had some kind of experience like that, either directly or vicariously through a friend or loved one.
The staffer who was more personally responsible than anyone else for the drafting of what became Obamacare had a mother who took an job not because she needed the minimum wage job – but because a pre-existing condition precluded her from buying health insurance on the individual market. That meant she needed a job, any job with a large employer. The draft of the new law prohibited insurers from excluding people with pre-existing conditions from buying insurance on the individual market.
Everyone involved in the writing of the Affordable Care Act similarly saw and understood health care as an issue that was more personal and more emotionally charged tha any other. Accordingly, they struggled with one core question. How do you pay for giving millions of new customers the means to participate in a marketplace with inflated prices – customers with a damn-the-torpedoes attitude about those prices when they’re looking up from the gurney? Is that possible? Or must costs be pushed side, to be dealt with another day?
Everyday, you hear directly from Americans about what a broken health care system means to them – the bankruptcies, putting off care until it is too late, not being able to get coverage because of a pre-existing condition. We should be embarrassed or enraged that the only way Obama ended up being able to reform health care was by making backroom deals with the industry interests who wanted to make sue that reform didn’t interfere with their profiteering. We’ll be paying the bill for that forever. But Obama should not be blamed for making those deals.
Obamacare gave millions of Americans access to affordable health care, or at least protection against being unable to pay for a catastrophic illness or being bankrupted by the bills. Now everyone has access to insurance and subsidies to help pay for it. Tat is a milestone toward erasing a national disgrace. But the new law hasn’t come close to making health-insurance premiums and out-of-pocket cost low enough so that health care is truly affordable to everyone, let alone affordable to the degree it is in every other developed nation. Worse, it did little beyond some pilot projects and new regulations to make health care affordable for the country. Instead, it provide massive government subsidies so that more people could buy health care at the same inflated prices that so threaten the US Treasury and our global competitiveness.
Obamacare was trumpeted as a modern innovation that would force another hidebound industry to be more competitive. Expedia for health insurance was a winning political bumper sticker in an age when even Democrats were wary of being accused of redistribution. But the real bumper sticker might have read Money for the poor and middle class so they can get insurance to buy the same product everyone else does at he same price that makes everyone in the health care industry so rich.
2. How To Fix It: Let the Foxes Run the Henhouse.
Is there something we can now do to fix that? How can we go beyond Obamacare?
After the author’s surgery, he returned to New York-Presbyterian Hospital to talk to its top executives. They discussed the aggressive chargemaster bills he had gotten following his surgery – totallint $150,000 – and the fact that the hospital’s brand name was so strong, it had to offer only a 12% discount off those exorbitant prices ($451) for each of the eight times a portable X-ray machine was used. For massive hospital systems like New York-Presbyterian, a product of the merger of New York City’s two most prestigious hospitals, this kind of leverage over enen the largest insurers like UnitedHealthCare, was not unusual.
Only a third of the CEO’s annual income (which accounts for half of his annual pay)is based on the hospital’s financial results. The rest is based on an elaborate patienet-satisfaction survey and an even more elaborate set of metrics related to patient care.
This may be how to fix Obamacare and American health care. Give the most ambitious expansion-minded executives responsible for the chargemaster, but also responsible for providing stellar care even more free reign – but with conditions that would cut costs and eventually kill the chargemaster. By gaining control over insurers, elite clinics and hospitals that dominate a geographic area stop recognizing the insurers and provide their own insurance. By being the dominant provider by controlling the many hospitals, clinics, labs and doctor’s offices in an area, the insurance companies are eventually driven out of an area, that hospital becomes the dominant insurer selling insurance that would cover patients for all services in their facilities.
3. Cutting out the Middleman
There would be no middleman. No third-party insurance company. The hospital owned insurance company would have not only every incentive to control the doctor’s and hospitals’ costs but also the means to do so. It would be under the same roof. Conversely, the hospitals and doctors would hve no incentive to inflate costs or overtreat, because their boss, the CEO, would get the bill when those extra costs hit his insurance company. All the incentives are aligned the same way. It’s the beauty of being the payer and provider at the same time.
When the incentives are not aligned, it’s why seniors dying of cancer get chemo when they should just get hospice care. But how could one know that these cancer patients, who had nowhere else to go in the area, wouldn’t be denied chemotherapy when they actually needed it? That’s where doctor-leaders come in with strong oversight and regulation.
Hospitals are already consolidating all over the country. Let them continue. As they continue, encourage them to become their own insurance companies, so that they can cut out the middleman and align those incentives. Harness their ambition to expand,, rather than how and when to contain it.
Get the ability to use all the facilities and doctors of a health provider whose incentive has always been to provide good care, not expensive care full of unnecessary and overpriced CT scans and blood tests. And doctors would be held accountable to determine the nature of that care, not insurance companies.
Ensure that accountability by insisting on tight regulation, mostly through the smarter use of federal antitrust law and state regulatory authority, in return for giving doctor-leaders the freedom t expand and also the freedom to become their patients’ insurance companies.
The first regulation would require that any market have at least two of these big, fully integrated provider-insurance company players. There could be no monopolies, only oligopolies. The largest markets might have to have four or more to make the competition real and to make sure their footprints were large enough and their marketing plans robust enough to serve patients throughout their regions, not just in the wealthier areas.
That would mean the hospital and all the doctors it controlled would be subject to pricing and service-delivery standards that several reformers have sought since the mid-20th century. Health care in the US would finally be treated as a public good, not a free-market product. It would have come because the private players had driven it to that state.
These fully integrated brands could pursue recent innovations that offer less expensive, more consumer-friendly care, such as storefront urgent-care centers that are smart alternatives to expensive, time-wasting hospital emergency rooms. It would be better to pay them than pay a walk-in center owned by a private-equity fund.
The second regulation would cap the operating profits of what would be these now-allowed dominant market players at say, 8% a year compared with the current average of 12%. That would force prices down. Better yet, an excess-profits pool would be created. Those making higher profits would have to contribute the difference to struggling hospitals in small markets.
A third regulation – which again, the hospital systems would have t agree to in return for their being allowed to achieve oligopoly or even monopoly status – would prevent hospital finance people from playing games with that profit limit by raising salaries and bonuses for themselves and their colleagues (thereby raising costs and lowering profits). There would be a cap on the total salary and bonus paid to any hospital employee who did not practice medicine full time of 60 times the amount paid to the lowest salaried full-time doctor, typically a first-year resident. (most would make about the same as they do now)
A fourth regulation would require a streamlined appeals process, staffed by advocates and ombudsmen, for patients who believed they were denied adequate care or for doctors who claimed they were being unduly pressured to skimp on care.
A fifth regulation would require that any government-sanctioned, oligopoly-designated integrated system have as its actual chief executive a licensed physician who had practiced medicine for a minimum number of years. The culture of these organizations needs to be ensured, even if that means choosing leaders based on something in addition to their business acumen and stated good intentions.
Sixth, any sanctioned integrated oligopoly provider would be required to insure a certain percentage of Medicaid patients at a stipulated discount.
The final regulation: These regulated oligopolies would be required to charge uninsured patients o more than what they would charge competing insurance companies whose insurance they accepted, or else a price based on their regulated profit margin if they didn’t accept other insurance, In other words, no more chargemaster.
All this may seem complicated but are minimal compared to the thousands of laws and millions of pages of rules and regulations that are now on the books. And it is certainly more realistic than pining for a public single-payer system that is never going to happen.
Allow doctor-leaders to create great brands that both insure consumers for their medical costs and provide medical care. Let them act on their ambitions. Let them compete with other legitimate players in their markets, or even one another if they want to expand. That kind of competition is already happening.
But as things stand now, an employer who wants to get health care for his workers, or an individual who is shopping on the Obamacare exchanges, has to figure out which insurance company has which hospitals and doctors in its network and what discounts it has negotiated. This change would create a new, clearer competitive process.
It would be insurance the way it’s supposed to work – the risk associated with the cost of his surgery would be spread across a pool of premiums that the oligopoly collected from tens or hundreds of a large pool. If one charged too much or didn’t do a good job, either my employer or I could switch to another competitor. And all that competition would be fortified by advances in data transparency that would make each competitor’s quality ratings for various types of care readily available.
4. Hundreds of Billions in Savings.
We cold cut 20% off the two-thirds of our health care bill not paid by Medicare or Medicaid. First, administrative costs for insurance – including vetting claims, paying bills, paying managers and executives and distributing profits to shareholders – account for 15-20% of private health care costs. Half could be saved by cutting out middleman insurance companies. Costs would be less than an insurance company responsible for paying bills from multiple third-party hospitals and other providers would. Nor would they have to distribute profits to shareholders. Savings 10% of total.
Second, on the provider side, the main culprit in driving costs up – the incentive for overtreating and overtesting that comes with billing for each patient encounter and procedure instead of billing for overall treatment – would be eliminated. And the general incentive to maximize revenue would be tamped down by the new regulation capping operating profit at 8%. Savings 10% of total.
That would go a long way toward bringing American health care costs as a percent of our gross domestic product closer to those of the countries we compete with.
More hospital/clinic systems would sell their own insurance if their system were big enough to provide the full spectrum of quality care and if they needed to do it to be competitive.
The health care system in the US is not a system at all. It’s just a collection of disparate providers. There is a need to consolidate. Although the number of hospital beds in the US has declined recently from 1 million to 800,000, there is still only 65% occupancy.
Doctors have consolidated their practices, often under the umbrella of large hospital systems as medical knowledge doubles every two years. So you continually need to specialize to keep up. And the more you consolidate, the more you can specialize. The more you specialize and do a lot of just one or two things, the better you are at them and the more cost-effective you are. That’s why they call it practicing medicine.