The US Department of Health and Human Services building is shown in Washington, DC. AFP PHOTO/Saul ... [+]
In the fury of the healthcare debates over the last decade, most people have come to realize that we spend a lot of money on healthcare in this country. On average, we spend about twice as much per person on health than other large wealthy countries. It’s also generally recognized that we aren’t getting our money’s worth. “Better health outcomes at lower cost” became the common theme for efforts to reform healthcare over the last 20 years, but we still have a long way to go in achieving the goal. CMS has tried to address the increasing cost problems with reimbursement cuts—including an additional 1.7% haircut that went into effect in March—but the efforts fall short of solving the underlying problem and come with serious unintended consequences.
So, why do we have this problem? It’s partly because neither the physician nor the patient—the critical actors and decision makers in the equation—are paying for it. As a result, as I explain at length in my latest book Bringing Value to Healthcare, neither has had a direct stake in the cost side of the equation. And differentiated quality outcomes are hard to come by.
Unlike other markets, third parties continue to negotiate for and pay the costs of healthcare—businesses through the mechanism of benefits, and insurers through paying the bills. While it’s generally understood that rising costs for healthcare benefits have had a dampening effect on wages, the concept is theoretical to most because people have limited visibility to how this really works in practice. Nor do we understand how this dynamic impacts our purchasing power in the form of higher prices for goods and services in other markets—essentially a double whammy.
In every other industry, advancing technology has generally resulted in lower costs and improved products and services. It hasn’t worked that way in healthcare.
Until the U.S. creates a true market-based approach to the healthcare industry, we won’t be able to crack rising costs and differential quality in any meaningful way. As I’ve explained before, transparency (in cost and quality), increased accountability for outcomes across the continuum and a consumer-centered model for healthcare will be table stakes to achieve the goal of better health outcomes at lower cost.
While there are many contributing factors to our current healthcare crisis, at the heart of the problem is how we pay for healthcare drives what we get. This is how any free-market works… or doesn’t.
During World War II, employers began offering benefits such as health insurance to attract and keep employees. Like any benefit, once given, it’s hard to take it back. Going forward, one of the most critical success factors to fixing healthcare will be the proper alignment of payment with results—providing incentives for the right provider, insurer, and consumer behaviors in order to achieve measurably better health outcomes. As I have outlined before, we need a new business model in the industry.
Any realistic effort to create an improved business model must comprehensively address the extraordinarily complex array of multiple stakeholders involved. This includes: health systems and physicians; payers (including the government); drug, device and diagnostic manufacturers; and us as consumers. Every one of these stakeholders is ‘at fault’ for our current situation.
Until relatively recently, manufacturers have focused on clinical value or equivalence as required for regulatory approval, and largely ignored economic value in their innovation of new drugs, medical devices, and tests. In every other industry new technology has resulted in more benefit at lower cost. In healthcare this has largely not been the case, as payments have not been tied to evidence of economic and clinical value. Reimbursement has started to shift in this direction.
Providers have assumed a production mentality that has resulted too often in overutilization, uncoordinated care, and deteriorating quality. In the absence of payment tied to quality and cost management, the healthcare delivery industry has been notably unique in its inability (or unwillingness) to change how it provides care in order to improve the care it delivers. Unfortunately, too many health systems have not meaningfully improved quality or their value proposition.
Consumers often have demanded drugs and procedures whether their physician says they need them or not. Over time, employer-based healthcare insurance has eroded any expectation or capability of consumers to make cost-benefit decisions on their own behalf, displacing this with a sense of entitlement for services they desire. While high deductible health insurance plans and co-pays have mitigated some of this tendency, direct-to-consumer advertising by drug and device manufacturers has benefited from this lack of accountability, encouraging patients to “talk to their doctor” about any real or imagined ailment for which there is a product.
And in their interest to control costs, payers (especially the government) have devised a payment system that lacks any alignment either with better care or reduced costs. Worse, they have created administrative cost burdens with a cost-accounting approach to payment that has spawned a new industry just to deal with the minutiae of billing—totally disconnected from any outcomes healthcare is supposed to achieve.
Finally, both CMS and private payers, by virtue of their choice of payment rationale and business practices relative to providers have contributed to a deterioration in the ethical standards of the entire healthcare sector.
As I reference in my book, CMS has chosen to underpay providers by 15-20% relative to market rates and the actual cost of care delivery as its way of managing costs. Because of its massive market power, providers have no choice but to accept this compensation, which naturally leaves them feeling abused. CMS also has established the business practice of paying promptly and relatively uncritically the claims received, which, combined with a Byzantine pricing scheme serves as an invitation to game the system through upcoding, which has become normative.
Private payers have taken the opposite tack. They scrutinize claims, challenging, denying, and down coding payments. When combined with excessive payment delays, this again leaves providers feeling victimized, setting the stage for rationalization of any tactic they take that allows them to redress the financial humiliation forced on them.
The combination of these dynamics has created a situation in which physicians, healthcare systems, and even manufacturers more easily find excuses for overutilization of diagnostics and procedures, for devoting resources to building volume for those services that pay, rather than those that may be needed, for gaming the system against the spirit, if not the letter of the law, and for using their own market clout to exact unreasonable concessions from their suppliers. The pervasive reach of payers alongside the PBMs they own, and the impact of their respective practices has contributed to the ethical erosion of a profession historically energized by the most noble and ethical motives—a loss that is far more profound than any economic measure can capture.
As a result, the U.S. is paying more than any other country for healthcare, while national epidemics such as diabetes and obesity continue to rage out of control. All stakeholders are contributing to this situation, and all will need to be part of the solution. Continuing to give financial haircuts to physicians and healthcare systems will spur more physicians to leave the industry and more healthcare systems to shutter their doors. It’s a cycle an aging population can ill-afford.
