The Healthcare Jigsaw Puzzle – We Need to Fix the Problems and NOT the Symptoms

By Larry Ventimiglio

 

Are you familiar with the word “Oligopoly”?

An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). Oligopolies can result from various forms of collusion which reduce competition and lead to higher prices for consumers. Oligopoly has its own market structure.  Free enterprise doesn’t exist in this arena.  Competition gets choked out!

The U.S. currently spends more on healthcare services than any other country on earth.  It comprises nearly 20% of gross domestic product, and medical spending rises faster than inflation and the economy as a whole.  Why has healthcare become so expensive?  How have we gotten here?  Can anyone, including government, turn this thing around?

We have all played a role in this, so let’s take a closer look at the major root-causes for this dilemma.  We’ll get back to the term “oligopoly” a little later because it is extremely pertinent in understanding the healthcare crisis.  The seven factors identified below were based on a report, prepared several years ago, from the Bipartisan Policy Center, a think tank in Washington, D.C.  I’ve inserted several of my observational comments, and my two-cents worth of opinion.

1. We reward medical providers for doing more, rather than being more efficient

Most insurers, including Medicare, compensate doctors, hospitals, and other medical providers using a fee-for-service system that reimburses for each test, procedure, or visit, so more tests = greater fees.  While the medical system is working toward greater information integration, we’re not quite there, yet.  As a result, the system may encourage repetitive testing and overtreatment.  Both of these factors work against gaining greater efficiencies and cost containment.

So, we perhaps need to consider modifying the approach on reimbursements, and base compensation on results/patient outcome, rather than service.  This would encourage greater efficiency and lower costs.  Perhaps we should also consider performance incentives to reward service performance resulting in improved patient outcomes while reducing costs.  So far, this concept hasn’t gained any traction.  It may be difficult to develop objective benchmarks.  Additionally, greater information integration will reduce current administrative wastes, but there is more work to do in this area.

2. Our Population is growing older, sicker, and fatter

Nearly half of the U.S. population has one or more chronic conditions such as heart disease, diabetes, or asthma, which drive up costs.  Two-thirds of adults are either overweight or obese, which also leads to chronic illness and inflated medical spending.  The baby boom generation is heading into retirement, with enrollment in Medicare set to grow by an average of nearly +2.0 million people annually.  Additionally, certain population demographics within geographic areas have become centers of certain types of chronic illnesses.  South Carolina is a good example, here.  Typical chronic illnesses within our area include cardiovascular-based illness, diabetes, and certain types of cancer.  For the most part, these are based on lifestyle behavior habits – eating, lack of exercise, and smoking.

This is an area where healthcare insurers can provide lower premium incentives to enrollees who participate in “healthy lifestyle wellness” programs to promote healthy exercise and eating habits and eliminate tobacco usage.  Encouraging more positive lifestyle habits, however, takes time to gain traction and effect positive changes in overall health.

3. We want new drugs, new technologies, services and procedures 

Medical advances can help us get well, avoid disease, and even delay death, but they also drive up spending.  New advancements in drugs, technologies, and procedures come on the market after being tested for safety and whether the new treatment is comparable to existing ones or even placebos.  We demand new treatments; even if there is little or no evidence that they are better than existing therapies.  Prices for newer treatments are generally higher than for products they replace.

As a rule, we need to take greater advantage of generic drugs, whenever possible.  They have proven to be reliable, cost-effective medical prescription alternatives.  We also need to become better informed in areas of treatment cost management.  “Newer” does not always mean “better”.

4. We get tax breaks on buying health insurance – and the cost to patients seeking care is often a fraction of the actual premiums 

The majority of people with insurance obtain it through their employers.  We need to move away from this approach, and move toward making health insurance personal and portable.  This would permit personal control, rather than control by an employer or government.  Additionally, it more closely resembles how we purchase auto, life, and homeowners insurance.

Employment-based insurance distorts our healthcare system in several ways, including:

a) It hides the true cost of healthcare to consumers, and encourages overconsumption.

b) If workers believe someone else is paying for their healthcare, they have less incentive to be frugal

c) If you lose your job, you are more likely to end up uninsured.

Changing the funding source of healthcare would also require a shift in tax policy. Instead of paying for employee health insurance, employers would shift those dollars to taxable wages, allowing employees to shop for the health insurance that most closely meets their needs.  To offset the increased tax, employees would receive a standard deduction, a tax credit, or expanded Health Savings Accounts (HSAs).

5. We consumers don’t have enough information to make fully informed decisions on which medical care is best, and it’s cost

Despite a wealth of information at our fingertips via medical journals and the Internet, there is no uniform or quick way to understand treatment options and costs associated with them.  Even when evidence shows a treatment isn’t effective, or potentially harmful, it can take a long time for that information to actually change how doctors practice or what patients demand.  Additionally, Americans vary widely in how they view end-of-life issues, with some desiring every possible medical intervention to push back on death, no matter how small the possibility of success.

Healthcare providers need to do a better job in “educating” patients and their families, as one of their primary responsibilities.  We, as patients, need to take greater responsibility for our own personal health.

6. Hospitals and other providers are increasingly gaining market share and are better able to demand higher prices

Here’s where we get back to that “oligopoly” thing.  While we haven’t addressed the root-cause issues for the healthcare cost explosion over the past several decades, medical providers and insurers have been consolidating and growing in both size and geographic footprint.  While mergers or partnerships among medical providers or insurers may improve efficiencies and help drive down costs, consolidation can also have the opposite effect, allowing near-monopolies in some markets while driving up prices.  Increasingly, hospitals, as well as pharmaceutical companies have been buying up rivals, creating larger medical systems.  Prices for products and services have gone unchallenged.

So, here we are with a healthcare system that has been permitted to become less cost-effective, rather than more cost-effective.  We need to increase competition by breaking up these insurance and provider cartels.  This would require states to re-evaluate their current regulations, and move more toward permitting greater competition at both the insurer and provider levels. More insurers need to compete, and more hospitals need to compete.

7. We have supply and demand problems, and legal issues that complicate efforts to slow spending

While malpractice premiums and jury awards play a part in what drives spending, a larger problem, although difficult to quantify, is “defensive medicine” – when doctors prescribe unnecessary tests or treatments out of fear of facing a lawsuit.  Fraudulent billing or unnecessary tests by medical providers seeking to “game the system” are additional concerns, particularly with the growing population segment of geriatric patients.

Additionally, some state laws limit the ability of nurse practitioners or other medical professionals, who are paid less than doctors, to fully perform work for which they are trained.  Since the U. S. faces a shortage of primary care doctors, more advanced practice nurses and others will be needed to help care for patients who gain insurance coverage from changing federal health law.  Conversely, the U. S. has a higher ratio of specialists than other countries, which can also drive up spending.  Specialists have more advanced training than primary care physicians, and are paid far more.

We need to empower non-physician medical professionals with greater ability to treat patients.  This would mean rethinking medical licensure and “scope of practice” laws, which currently reflect the power of special interest lobbies intent on preventing competition, rather than protecting public health and safety.

The Bottom Line 

Obviously, this is a complicated set of multiple intertwined issues that will require thoughtful, and objectively balanced, solutions to the root-cause issues, rather than cost shifting approaches.  We need to find a workable “balance” to solve this problem.  Lots of feathers need to be ruffled!  Leadership commands and empowers integrity, responsibility, authority, and accountability.  This is a very real problem that requires strong leaders in both healthcare industry and government to work together for the good of our country.  What a novel idea! 

 

What about YOUR business?

What does “success” mean to YOU?

Let’s talk, and I’ll show you how we can achieve greater business success for YOUR business.

 

Larry Ventimiglio

LJV Business Solutions, LLC

843-245-9753