Summarizing the Debate – A Challenge for All
The current health care debate can be confusing to the average consumer. This
paper attempts to outline the simple truths about health care costs, why costs have risen, and dismiss some of the common
myths we hear in the debate. This paper also outlines a path to solving our health care challenges.
After 16 years in health care, assembling a coherent yet
simple summary on the (why’s) in health care proved to be challenging. My work with hospital executives
and administrators across the country assisted in producing a paper based on what we know to be true in day-to-day health
care practices in conjunction with research completed by other quality organizations.
I also understand the necessity for our elected representatives to speak in general terms during the
health care debate since most have only had patient experience as their reference. It is a complex and
difficult field to navigate for even those that spend their entire careers in the health care arena.
What makes health care costs go up?
When attempting to discern the factors contributing to the rapid rise in costs within the health care
system, we must realize there is not a single ‘silver’ bullet that attributes to rising cost. There
are a variety of factors that contribute to health care inflation far beyond inflation in the rest of the economy.
Understanding just a few of these factors can point us in the right direction when reforming health care.
We must also tackle the issue of statistics that are used in the health care debate. Many so-called
facts serve as the basis of emotional appeals but are misguided and misused.
Setting a Stage of Understanding
There are 2 main facts
that we need to familiarize ourselves with and clarify before deliberating the specifics of what causes health care inflation.
The first fact is recognizing the already large role the government plays in health care reimbursement.
Government reimbursement directly impacts cost, policy, and care standards. The second fact is gaining
an understanding of health care (medical price) inflation, what it is,
and how it differs from general economy-wide inflation.
Government Reimbursement and Policy – Fact 1
The introduction of government insurance programs
in 1967 fundamentally changed the way health care was purchased in the U.S. Since then, government has
inserted itself into a regulatory role within the health care industry and rising costs have been a direct result.
Another major driver for change in our health care system was the HMO Act of 1973 which provided
grants and loans to provide, start, or expand HMO’s. It removed state restrictions for federally
qualified HMO’s and asserted requirements for employers. The Act gave HMOs greater access to the
employer-based market. This marked an era of rapid expansion of HMOs (and combined with Medicare and Medicaid),
decreased out of pocket expenses for health care services. In addition, federal laws were introduced that
mandated public access to health care services regardless of a person’s ability to pay.
Before and After:
- Before the advent of Medicare and Medicaid and the HMO Act of 1973, the private sector funded over 75% of the
country's health care expenditures.
- Individuals paid nearly 50% of total costs out-of-pocket.
- Health care inflation
was in-line with the consumer price index (CPI).
- Currently, individuals pay about 10 to 15% of total expenses out of pocket.
- By 2005, personal health care expenditures paid
by private health insurance dropped to 36%.
- By 2005, reimbursement for health care costs by the federal government rose to 35% while state and local government
reimbursement rose to about 11%.
- Today,
inflationary costs far exceed general inflation in all other sectors of the economy.
On the world stage, per-capita spending on health care by the
U.S. government placed it among the top ten highest spenders among United Nations member countries in 2004. Health
care spending has grown to account for 1/6 of the American economy. Let us note, that the federal and state
governments account for almost 50% of all health care dollars or 1/12 of the economy. Federal and State
dollars directly cover the retired, disabled, children, veterans, and some of the poor. This level of direct
government involvement and policy making within the health care industry contributes greatly to the inflationary costs of
health care as we will see in the following sections.
‘Economy-wide Rate of Inflation’ vs. ‘Medical Price Rate of Inflation’ – Fact 2
Natural and normal inflationary pressures
exist in all sectors of our economy beyond the scope and control of the health care industry. As an example,
the price for steel surgery instruments used in health care should rise as the costs of the components required to manufacture
steel surgery instruments rise.
While
some urge and claim that we must institute price controls or other policies in order to address health care inflation, we
must remember that there is some natural and normal inflation in all sectors of the economy. We can never
reduce economy-wide inflationary pressures. Therefore, it is necessary to distinguish between contributions
of economy-wide inflationary pressures and the costs that the health care industry can control, medical price inflation.
“From 2000 to 2006, economy-wide overall inflation had increased 3.5%, wages increased
3.8%, and health care premiums increased 87%.” Source:
Kaiser Family Foundation
Medical
price inflation is the culmination of variables and factors that go into the rising costs of health care beyond
normal inflationary costs in the general economy. Understanding these factors contributing to medical price
inflation will assist us in discerning how the current policy debate may affect our health care choices in the future.
Medical
Price Inflation (What makes the costs go up?)
The following section describes the 2 primary contributors to medical price inflation; Intensity and
Government Reimbursement/Policy.
Intensity
Medical Care Intensity can be described as the number of ‘units of
care’ delivered in the treatment of a patient condition. To best understand this
concept, take any common condition seen in an Emergency Room setting such as chest pain. The ‘unit of care’ delivered by a health care facility today to diagnose and
treat chest pain may look much different today than it did ten or twenty years ago. In essence, we’ve
improved! We have better options available to us in the diagnosis and treatments of many of the conditions
and diseases for which we seek care. These improvements include new medical tests, technologies, equipment,
and medications that are now considered routine. Due to the progress and improvement in our health care
treatment options, the ‘units of care’ delivered are higher
for many conditions compared to only a decade ago. Simply, we can do more to get better and safer patient
outcomes. But having more intensive diagnosis and
treatment options which lead to better patient outcomes also comes at a cost.
Technology is also a factor in medical care intensity.
The Congressional Budget
Office found that about half of all growth in health care spending in the past several decades
was associated with changes in medical care made possible by advances in technology.
The question arises, should we strive for less
technology and better care to reduce costs? A simple and silly question, yet pertinent to the changes that
are being proposed that will stifle improvements and technological advances in health care. How many people
would ask for reduced quality of care for themselves or for loved ones in order to save costs? Would you
forgo the Cat Scan’s, MRI’s, or Interventional Radiology procedures that can save your life? People
expect the best care with the best possible outcomes based on what the latest state-of-the-art options medical science can
provide. With government run health care, federal employees will be making that decision for you.
Another contributing factor to increasing
the intensity or ‘units of
care’ we receive for a condition is the number of medications available that were not available 20 or
30 years ago. Prescription drugs take about 10 percent of our health care dollars. The
use of prescription drugs is increasing among the baby-boomer generation as they age and are in greater need of medications.
One of the most avoidable factors contributing to the increasing
intensity of medical care delivered is the practice of defensive medicine.
A recent studied indicated that 26% of all health care dollars are as a result of practicing defensive
medicine. Care givers fear being sued and often will do more testing to reduce liability. Regulators
and elected representatives have been hesitant to take on tort reform as factor in fighting inflationary health care costs.
Another avoidable factor we must safeguard against is using technology
for the sake of using technology. The industry must be vigilant and understand that more intensity is not always better. Sometimes, ‘units of care’ are added to patient diagnosis and treatments without a direct correlation
to better patient outcomes. Better competition within the health care market will weed out inefficient
patient care that consists of intensity without the proper corresponding patient outcomes. Standard practice
will be defined by those facilities and care givers that can deliver the best patient outcomes for the least cost.
Government Dollars and Policy
Federal and state government reimbursement models
play a major role in the rising costs of healthcare by reducing the payment for health care services. Since
government reimbursement for services is typically lower than the private sector, pressure is put on private payers to make
up for the loss of fair economic value that care givers receive from the government.
There are models where government reimbursement only pays ten cents on the dollar for services rendered,
(or sometimes no payment at all). Let us review how low reimbursement by the government actually increases
costs and reduces the quality of care in our system:
1. Care givers must increase patient load and increase private payer costs.
During an 8 hour day, a physician must increase the number of patients seen in order to cover static costs when the
government pays less per patient. But many times, increased patient volume is not enough to offset the
cost of accepting lower government reimbursement. Costs must be increased for private payers.
(If you wonder how aspirin could cost $5 per pill in a hospital, you now know why.)
2. Care
givers may not accept government insurance. With an increasing number of patients that pay
at less than fair economic value for services rendered, it is expected that a large number of care givers may leave practice.
This will put even more pressure on the care givers that do provide services to this demographic. More
patients for a reduced number of doctors will result in longer waits. (If you thought waits in the E.R.
are long now, just wait until you have fewer providers.)
3.
Facilities may close. There
are cases where hospitals may choose to stop delivering services when financial losses overcome ability operate in the black
due to lack of reimbursement for services rendered. There are parts of the country where numerous hospitals
have ultimately closed or services such Labor and Delivery/Maternity have closed due to the losses suffered from lack of payment.
(My business has seen this first hand and it happens more often than you think.)
Beyond reimbursement, there are an endless number of regulatory and policy decisions made at the state
and federal level that lead to increased costs while reducing competition and quality. The Cato Institute argues that health care is the most heavily regulated industry in the United States.
They did a study that suggests that this level of regulation provides benefits in the amount of $170 billion but costs
the public up to $340 billion.
Here are a few examples
of policy that can assist us in understanding the cause and effect of government regulation:
1. State Regulations have increased. Many states now require insurance
companies to cover an increasing range of health care services. Some of these services may include items
such as acupuncture, breast reduction, contraceptives, dieticians, drug abuse treatment, hair prosthesis, in vitro fertilization,
and massage therapy. The increasing requirements serve to fundamentally change the risk management system
of insurance from catastrophic risk to comprehensive health care coverage. This directly relates to substantially
higher health insurance premiums for everyone. When a third party pays for routine services, consumers
become desensitized to costs leading to over-utilization.
2.
Capping the number of doctors educated.
By limiting the number of doctors that can be educated each year, demand for services artificially increases.
Quality also decreases because results are not the high-water mark for the industry and bad practitioners are not weeded
out. In addition, with an increased demand for physicians, U.S. physicians are paid twice the wages than
their European counterpart.
3. Certificates of Need - Facilities may not open. Many
states have "Certificate of Need" programs which prevent the opening of new facilities without a state license.
In order to open or expand a health care facility, an organization must license the number of hospital
beds via government’s judgment regarding supply. It can be nearly impossible to open a facility based
on pure free market competition. Even high-quality hospitals can be hindered from competing in certain
markets in order to keep down the number of service providers. A federal report noted that the incumbents
can all too easily use these certificates to prevent competitors from entering the markets, and that this raises prices by
weakening direct and indirect competition.
4. Government policy has also been the primary driver in changing health care being driven by the individual
to a primarily employer-based coverage system. “Among the 84.2%
with health insurance in 2006, coverage was provided through an employer 59.7%, purchased individually 9.1%, and 27.0% was
government funded. Source: US Census Bureau”. With this fundamental shift, people have become disconnected
with the real costs of services provided due to low out of pocket costs which results in overuse of services.
Unaware patients seek services that are often not needed and in return increases health care costs. Another
obvious unintended consequence of this change is the lapse of health insurance people experience through a loss or change
of job status. The COBRA insurance program was intended to shore up this problem, but how many people
can pay the full costs of insurance benefits if they lose their job? The average premiums paid by a typical
family with employer-based insurance ranges between $2,500 and $3,500 a year while the employer picks up the rest of the average
$12,000 a year premium. If you lose your job, it is nearly impossible for most people to pick up this additional
cost.
5. Banning cross-state insurances. The
federal government prohibits the sale of health insurance across state lines, which is seen by many as one of several causes
for the high cost of health insurance in the United States. It directly decreases the amount of competition
between insurers. Average health costs in premiums in New Jersey can be about five times that of Kentucky,
so why not allow the competition across state lines? There are those that worry that allowing the purchase
of insurance across state lines would prompt one state to become a regulatory safe haven for insurance companies, thereby
harming consumers. However, states that would allow insurance companies to operate on questionable terms
would face great risks to its economic base by allowing unsavory practices.
6. Scope of Practice Laws. There are regulatory requirements
preventing technicians without medical degrees from performing treatment and diagnostic procedures that carry little risk.
Some jobs and tasks require very little training and could be done much less expensively if these rules were re-evaluated
for effectiveness versus cost.
Knocking Down the Myths
While listening to the health care debate, we
must educate ourselves and not fall prey to some of the data and statistics used by politicians. Here are
just a few key data points that you need to know.
The Uninsured
According
to the US Census Bureau, in 2007, 45.7 million people in the U.S., or about 15% of the population, were without health insurance for at least part
of the year which was down slightly from the previous year. A look inside the numbers shows a more accurate
reflection of what ‘uninsured’ means:
·
10 million people
included in this number are non-citizens (21%).
·
17 million people,
or 38% of the uninsured, live in households with incomes of $50,000 or more and half of those had incomes above $75,000 and
choose not to purchase health insurance.
·
11 million, or about
25%, already qualify for existing federal programs but have not signed up.
Costs are Just a Problem in the
U.S. System
This
is simply untrue. Government health care expenditures have grown more rapidly than inflation than non-health
care sectors of economies in all developed countries. One study researched ten mainstream countries such
as Canada, Australia, Germany, and the U.K. and found that health care expenditures grew at almost twice the GDP in all these
countries. While other countries may spend less per capita on health care, we must realize they also ration
health care and are still facing extremely high rates of inflationary costs.
Preventative Care – Not
a Long Term Cost Saving Strategy
Increased spending on preventative care is often suggested as a way of reducing long term health care spending.
Research suggests, however, that in most cases prevention does not produce significant long-term costs savings.
Preventive care would be provided to many people who would never become ill and would be provided services that would
have never otherwise sought services. For those who would have become ill, their costs are partially offset
by the health care costs they will accrue during additional years of life. While preventative care and
screenings are appropriate in certain situations, preventative care is not a major cost saving factor in health care.
Statistics are Deceiving – A Look at the
Infant Mortality Rate
It has often been stated that health care in the U.S. has become subpar. One of
the statistics used to justify this claim is that the United States ranks 43rd in infant mortality rate, down from 12th in
1960 and 21st in 1990. A closer inspection of this statistic reveals that the collection of data behind
the reported numbers can vary by country. We also learn that not all reasons leading to a higher infant
mortality number can be directly related to the health care system.
Example: The World Health Organization (WHO) defines a live birth as any born human being who demonstrates independent signs of life,
including breathing, voluntary muscle movement, or heartbeat. Some countries, including the United States, include in their numbers any infant exhibiting any sign of life as alive, no matter the month
of gestation or size. But according to the United States Centers for Disease
Control, other countries differ in their definitions of live birth. Some countries
such as France, Poland, Ireland, and Czech Republic, do not report all live births of babies under certain weight/age ranges.
Hong Kong and Japan often do not follow WHO recommendations by misreporting infant deaths as still births if they die
within the first 24 hours of life. The exclusion of any denominators can be problematic and makes the infant
mortality rate comparison futile.
We must also look at one of the biggest factors in infant mortality rates not discussed; pre-term
births. Because pre-term births are at a much greater risk of death than term births, countries with a
higher percentage of pre-term births tend to have higher infant mortality rates. In the United States,
1 out of every 8 births were born pre-term, whereas in Ireland and Finland only 1 out of 18 births were born pre-term.
The percentage of pre-term births in the United States was 65% higher than in England and Wales. The
data suggests that pre-term birth prevention is crucial to lowering the U.S. infant mortality rate.
So
what causes pre-term births? Two factors in pre-term births are teen pregnancy and having babies at an
older maternal age. Teen birth rates in the U.S. can be as high as 5 times the number in other countries.
Teen mothers are less educated and less likely to seek appropriate care. Teen mothers also smoke
more often and exhibit habits during pregnancy that increase the factors for pre-term births more so than older mothers.
In addition, as the average age of marriage rises in the U.S. each year, so does the age of child-bearing years.
About 11% of babies born in the U.S. have moms over the age of 35. Recent studies clearly show that
older moms have an increased risk of premature delivery.
Societal factors in pre-term
birth rates are not a result of the U.S. health care system. Yet, social factors do play a part in the
number of pre-term births in the U.S. which directly affects infant mortality rates. With the inclusion
of less strict reporting criteria from other countries, using the infant mortality statistic as an example of what’s
wrong with our health care system is dishonest and shows a lack of understanding.
Summary
– Finding a Solution?
The original health care debate centered on insuring the uninsured. The current debate does
not fully accomplish this goal. In addition, the current debate does not address the root economic factors
attributing to inflationary health care costs, which is the biggest issue we face in health care. Further
government involvement in the health care industry will only serve to discourage best practices, innovation, and will result
in rationing of care.
However,
we must realize that the argument is not really about fixing our system. President Obama stated in 2002
and 2007, that the goal was a universal single-payer health care system. In his statement regarding the
achievement of socialized medicine in the U.S.; ‘the American people are not ready for such a drastic change to socialized
medicine’, but a moderated approach in incremental steps will get us there.
We are the world leader in health care. This is why people come from around the world to
seek care in the U.S. We are the leaders in innovation as well; the top five U.S. hospitals do more clinical
tests than do all the hospitals combined in Canada. With our success, why are some leaders looking to scrap
our system?
Let’s fix our private system!
One of the primary issues in inflationary costs in health care is the government itself. To convert
to a fully socialized program will only exacerbate inflationary issues and will dramatically reduce our quality of care.
Our best future is to keep our system private. In order to truly affect appropriate change in health
care and still keep it private (and the best innovative system in the world), there are several things we must tackle.
As we have seen, there are three large contributors to inflationary
health care costs:
- Government Policy and Regulation
- Government Dollars that
Drive Health Care
- Medical Price Inflation
In order to achieve reform and reduce
costs, there are a few beginning steps that can lead the way:
- We must reform key government
regulations and reimbursement issues outlined in this paper that contribute to health care inflationary costs
- We must
move back in the direction of individual ownership of insurance policies
- We must allow Interstate purchasing of insurance
to increase competition
- Eliminate many of the cosmetic mandates that insurers required to cover
- Transform
Medicaid to a private voucher systems allowing consumer choice and competition
- Reform tort liability laws
There
will be many additional steps take to in order to fully address the challenges in our system, but addressing the first six
will go a long way to reducing costs and ensuring affordability for all citizens.
