If we want to "bend
the cost curve," we should focus first and foremost on administrative
simplification. The drivers of excess administrative costs are primarily
due to use of competing insurance plans to finance health care. Insurance works
fine for expensive, infrequent, and unpredictable risks like house fires.
However, when insuring health care for a population, a large percentage of whom
have known risks (pre-existing conditions and risk factors), then the overriding
incentive for competing plans is not to offer a better plan; it is to identify
higher risk (sicker) individuals and groups and avoid insuring them or avoid paying
for their care if they get sick. The attempts in the ACA to counter the
perverse incentives due to competition among insurance plans have been watered
down and will fail to achieve adequate control of the problem, and are adding
even more administrative costs. The only definitive way around these perverse
incentives would be to establish a social insurance model with a single risk
pool covering an entire population. This means eliminating competing private
health insurance plans, at least for medically necessary health care. Competing
private health plans also carry approximately six times the administrative cost
of a social insurance system.
Since the insurance
industry does not want to be pushed out of health care, they have a strong
incentive to blame providers and patients for rising health care costs, hence
the focus on fee-for-service and unnecessary care, and on increasing cost
sharing for patients to deter care. The result is ever rising administrative
costs and ever decreasing access to care for sick people.
Over-treatment and fee-for-service
Perhaps10% of national
health expenditures is attributable to unnecessary care (over-treatment). Some
of this is not due to financial incentives at all, but rather to lack of effort
or skill on the part of doctors to persuade patients that further care or the
requested treatment is ineffective or would only prolong suffering. Major
examples are futile end of life care and antibiotics for colds. Some
unnecessary care is also driven by direct to consumer ads for drugs and
specialized hospital services, which don't involve financial incentives for
doctors. Only a fraction is attributable to fee-for-service incentives.
Fee-for-service physician
payment cannot be a root cause of high US health care costs. Other countries
with much less expensive health care systems pay doctors with fee-for-service
and seem to have fewer problems with unnecessary care, and in studies of
regional variation in Medicare spending, high and low cost areas use
fee-for-service equally. It takes a combination of fee-for-service and
other factors to generate a lot of unnecessary care, such as for-profit
hospitals pushing doctors to do unnecessary procedures, and doctors who
start for-profit facilities and therefore have incentives beyond getting paid
for professional services.
There are pro's and con's
to paying physicians with either fee-for-service or salaried arrangements that
need to be clearly understood in health care planning. Fee-for-service
motivates doctors to work harder than they do under salaried arrangements,
but can be an incentive to unnecessary care. Salaried arrangements have no
incentive to over-treat, but do introduce an incentive to under-treat and
may skimp on necessary care. Salaried doctors also tend to work less hard and
have to be pushed to maintain high productivity. Where there is a shortage
of doctors, fee-for-service can encourage higher productivity. In urban areas
where there is an over-supply of doctors, salaried arrangements may be
better. For patients with straightforward chronic diseases, integrated systems
that can enforce protocols for best practice are probably superior. For "complex"
patients (around 25% of a primary care doctor's practice10) with
unclear diagnoses, unusual or complex problems, or poor compliance,
fee-for-service is probably superior because doctors will be more motivated to
put in the extra time required if they can get paid more for it.
Integrated, capitated health
plans such as Kaiser pay doctors on salary, so they have no financial incentive
to over-treat. Kaiser does a good job of treating patients with
established chronic diseases, but their system can be quite unfriendly to
patients with unclear diagnoses, complex interacting problems, or complicating
psychosocial problems. Kaiser in Hawaii limits their exposure to Medicare and
Medicaid. They accept some Medicaid patients under General Assistance and
Aid For Dependent Children, but they declined to bid on a plan for the higher
risk Aged, Blind, Disabled population. Their ads are entirely targeted to
healthy people. In other words, a good portion of their
"success" in delivering cost-effective care is actually attributable
to cherry picking healthier populations and avoiding sicker ones.
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