Re health care hullabaloo: It’s the costs, stupid!

The political and legal wrangling over Obamacare gained in intensity last week as the U.S. Supreme Court weighed its constitutionality and presidential candidates made it their central issue.

There’s great irony in all that high level attention, because the political commotion largely skirts the central issue surrounding health care in America. That issue, as we all know, is the hyperinflation that will take U.S. health care costs from $2.6 trillion to more than $5 trillion in 10 years.

Did it occur to the chefs cooking up the concoction at the federal level that there is an inverse correlation between access and cost/price? As costs ran amok over the last couple of decades, access grew to be a national problem.

The Democrats don’t think cost management. And Republicans have been AWOL on that all-important dimension as well; they just know what they oppose.

Little in the misnamed Affordable Care Act addresses cost. It addresses insurance and access, and it moves money from some segments of Americans to others to cover soaring bills. The young healthies will pay more if the mandate stands. The one-percenters will pay more. So will private sector payers as providers continue to shift costs their way to offset the lower-than-cost payments for the millions of Americans added to Medicaid roles.

Ironically, again, the private sector is racing forward to build a different business model for the delivery of health care. Businesses are taking charge, because they have no other good choice. Their innovations are becoming a replacement for the busted model that threatens to drive the country and individual citizens to insolvency.

The developing business model at leading private companies embraces:

• Consumer-centric plans with built-in incentives and disincentives, without which no economic system works. (Medicaid has none; Medicare has few.)

• Value-based purchasing that steers employees to providers who offer the best quality, service and price. The eye for value often selects clinics and hospitals that practice lean disciplines, the approach that has transformed manufacturing. One such provider now offers warranties on its surgeries.

• Proactive medicine that keeps people out of the hospital, as opposed to the reactive, fix-it-when-broke system now in practice. On-site clinics are being installed across the nation. There’s a stampede toward holistic care in those clinics.

• Primary care restored as the principal vehicle for care vs. the specialty dominated model that prevails in this country. Other countries, with much lower GDP expenditures for health care, base their systems on primary care.

• A transparent market for health care value vs. a chaotic non-market where prices vary 400%. Private companies are insisting on all-in, bundled prices, and they are getting them.

That’s a lot of change, but a lot of change is in order. Even local units of government are getting aboard real reform, along with a few states.

Most of these proven concepts have failed to dent the national debate, almost as if the private sector reforms at the ground level were invisible.

The pragmatic, proven innovations are bending the inflationary trend line. (Safeway has flat-lined its costs for six years.) They could be grafted onto Obamacare or Romneycare. Indeed, such savings could easily pay for universal coverage – without having to rely on possibly unconstitutional mandates as a funding mechanism.

The new business model is all about management science, not political science.

The sweeping reforms at the grass roots level won’t affect the federal debate much in this election year. In the nature of sound-bite campaigns, that debate will be simplistic: are you for or against ObamaCare.

But the private sector reforms will, of necessity, be adopted in the next decade. They will have to be adopted, because the financial pain — the crowding out of investments in education, defense, the environment, even in health care coverage as more doctors refuse to accept unprofitable federal payments – is too great to do otherwise.


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  • Anonymous

    What Economic Value does “For Profit” health ins. bring to the health care industry and it’s customers in America?
    In other words, Is it a NET Negative, or Positive?

    Address this simple question and include it in any further discussion of ” It’s the costs, Stupid.”

    Please answer honestly.


    • Dr. N

      @foxnewslieseveryday: Wrong ball you are following in regards to cost. Any for-profit (or non-profit) insurance entity will be motivated to provide cost-effective care as well as good customer service. If they skimp on providing care or have horrible customer service, employers will stop using their product (unless they price the product so cheap that employers will take it anyway – then they have no profit). If an HR director is getting calls and emails everyday complaining about their insurance it will matter at renewal time. If an insurance company is able to achieve lower health care costs (perhaps by encouraging prevention and wellness) and provides excellent customer service, why should we focus on their profit? Currently insurance companies price plans cheap for the first year and then jack rates the second. Thus employers switch companies every couple years. This motivates the insurance companies to “kick the can” down the road. It is like muscial chairs. Hope you are not holding the bag when the patient has the expensive bypass surgery. As a physician, I certainly am no fan of insurance companies. I am a fan of using fee market principles to create models which could sustain our health care system. In reality, health insurance company profits are a miniscule amount in the amount of health care dollars spent in this country. I don’t think a 3.4% profit margin is necessarily excessive. I doubt you would either – if you own a business.
      Medicare and Medicaid spending is over half of health care spending (over $2.6 trillion in 2010 )   These entities reimbuse physicians and hospitals at a (low) set rate. This encourages simple volume behavior. To make up for the low reiumbursement, see more, do more. There is no incentive for the patients, doctors or hospitals to look for cost effective solutions. This is why a change in these systems is desperately needed. As John has pointed out in the past, even small copays and deductibles change behavior. We need to bring this to the entitlements. Let people choose what they would like to pay for, rather than mandating what should be paid for. I would rather make this decision for myself and help my patients make these decisions, rather than having an unelected, unaccountable board do this for all of us. Sometimes the surgery is a better solution that the pain pill. Responsible doctors will help patients make this choice. Failure to do so will bring us to bankruptcy and severe rationing of care.

      Bottom line, insurance company profits are a speck of sand in the desert with any discussion of overall health care spending. Rather than looking for devils to blame, we need to focus on the elephant in the room.

      • Anonymous

         Thanks for the response.

        Didn’t answer my question.
        Net Negative value?
        Net positive value?

    • Anonymous

      I don’t think there is much difference between the dynamics of for-profit and no-profit organizations. They both need either a profit or a surplus. They act pretty much the same way operationally. One CEO of a non-profit, for example, took a salary of $3 million. The corporate structure is not the issue.

      • Anonymous

        Thanks, but That isn’t what I asked.
        I need to know the net Value of the “For Profit” ins. cartel  to the health Industry in this country.
        To be able to make a reasoned argument on whether they deserve or even need to exist.
        Are they a  Net  Negative or  positive value to the customer in health care.

        It’s a tough question for many, and I wonder why. 

  • Marilyn

    How do you address pre-existing conditions?  Our school – although given the “tools” to shop for other coverage – have staff that have had some unfortunate diagnosis (not the “preventable” types of cancer).  Quotes sky rocket compared to others in our region. How would the Private Sector deal with that if it were not a big enough business to balance the equation?

    • Anonymous

      Any group of any size is going to have some pre-existing conditions. They get figured into the cost of the stop-loss coverage for the group. Or those members could be carved out and covered in the state high risk pool.