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| Thought Leaders: Policy |
Medical Miracle
John Billings
05/01/2007
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We can contain healthcare costs
in the U.S. and make healthcare plans truly competitive. But not via the Bush
administration’s proposed health savings account scheme. This approach would be
no more effective at achieving market discipline than the co-payment and
deductible systems already in place. When it comes to the really big-ticket
procedures and drugs, the cost is of secondary importance for those who have
health insurance or can afford it on their own. For lower-income patients, any
plan that requires them to pay out of pocket might induce a patient to wait too
long and, ultimately, pay more.
Equally problematic is the so-called managed-care route, in
which patients enroll in plans, and plan administrators bargain with hospitals
and doctors to obtain reasonable prices, while competing with each other in the
marketplace. Two inherent flaws exist in the way we pretend to manage care.
First, most doctors and hospitals currently belong to nearly all plans. As a
result, plans have little leverage on providers. If Plan A becomes too
aggressive in its pricing or utilization controls, the provider can just quit
and continue to work with the less-insistent administrators of Plans B through
E.
Inform every hospital, doctor and other provider that they can belong to only one plan. |
The more critical problem remains that healthcare plans can
squeeze only so much out of unit costs by achieving discounted rates. Research
conducted by John E. Wennberg at Dartmouth and other institutions reveals huge
variations in medical utilization and costs; rates often run four to five times
higher in one part of the country than another. These discrepancies have little
to do with disease rates or demographics, but are primarily due to physicians’
choices in the course of care. Is intensive care required? Does the patient need
to stay overnight? Whether or not a hospital has an available bed often dictates
choices. Of course, hospitals do not remain financially neutral on admissions
decisions; supply can induce demand, which leads to increased
revenue.
Organized Reform
The starting point for any meaningful reform of this sector
lies in getting providers to view hospital admission and any other high-cost
service as an expense—and not as revenue. In addition, we need a payment system
that lets providers recoup some of their savings from reductions in other
expensive services and target that money for patients who really need those
options.
We can also modify health plans that attempt to restrict
choice. (Let’s call them organized health plans and drop the ruse of describing
them as "managed.") To start, inform every hospital, doctor and other provider
that they can belong to one—and only one—plan. A community may make exceptions
only if a hospital or specialist offers services not available from other
providers in the area.
Because a physician or hospital can belong to only one
organized plan, revenue from the plan will be increasingly important to the
healthcare provider, and the plan will begin to have some leverage over provider
behavior. Simply dropping out of the plan and sticking with the nine other plans
in town will no longer be an option. As a result, competition among plans will
become more meaningful, because an organized group of providers will comprise
one clear choice for consumers.
The plan’s costs and scope will reflect the relative efficiency
and performance of a specific subset of providers. Unit costs for each service
will play some role, but, more importantly, insurance premiums will reflect
provider efficiency and the levels of utilization of those providers—especially
when it comes to expensive items subject to induced demand, such as hospital
admission. What was previously viewed as revenue to providers will now be
considered an expense, with an incentive to control those expenses. For
providers that refuse to engage in efforts to assure high-quality and efficient
care, being dropped from the plan will incur much more serious consequences.
Patient choice among plans will also become more meaningful,
driven less by glossy brochures and promises and more by the relative value of
the coverage. And, finally, someone—namely a single subset of providers in the
community who come together through a common, organized plan—will actually take
on the responsibility of worrying about the patient. Sort of like a healthcare
system.
John Billings is an associate professor and director of the Center
for Health and Public Service Research at NYU Wagner School of Public
Service.
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