Its Time to Get the Government out of Fixing Prices for Health Care

Nine family physicians have decided to leave Indianapolis-based American Health Network (AHN) in favor of practicing their profession trade as part of Riverview Hospital.  The Indianapolis Business Journal’s reporting of this seemingly innocuous decision by nine doctors offers rich insight into the convoluted nature of the American health-care payment system.

According to AHN, these doctors can now bill their services for around three times what they were asking patients to pay when they were part of American Health Network.  AHN estimates that the additional billings will add $6.9 million to the health-care tab paid by the Indianapolis community for health care.

A number of reasons may have prompted Riverside to want these physicians to come to work for the hospital, but the bottom line appears to be this: Because these physicians are employed by Riverside, the hospital can charge higher fees for their services. In fact, the fees are three times higher than the physicians charged before they worked for the hospital.  Are the services now three times more valuable to patients?  Doubtful.  Are the outcomes delivered by these physicians significantly better?  Probably not.  Why then, the difference?

As they say, “it’s complicated.”  Let’s try to uncomplicate it.

In its quest to engineer an equitable and efficient payment system, the federal government regularly adjusts the payments it will make to the medical community for serving Medicare patients.  Because Medicare is such a large and significant component of health care, private insurers often establish payment systems that mirror those of Medicare. 

To clamp down on suspected over-billing for services by physicians in outpatient settings, Medicare has taken steps, the result of which is to make the differential between services provided in an inpatient setting larger than it has been in the past.  Not surprisingly, hospitals and physicians are reacting as you or I might if we were in their shoes.  They’re following the money.

Decisions like this by players within the health-care market have little, if anything, to do with improving the quality of care or reducing its cost.  These decisions have to do with maximizing revenue. This is what one should expect within an open-ended, fee-for-service financing model.

On the other hand, what if there were open and free markets for the services these family physicians provide?  And what if the price for services were based on the perceived value of the service, not on where the service was delivered?

To make this happen, a number of significant and important changes would have to occur. First, the government would have to get out of ongoing and continuous central planning. By substituting its judgment for the wisdom of the market as to how to best allocate resources, the government has created so many market distortions that health care can no longer legitimately be described as a market.  At least not a free market. 

The U.S. health-care system suffers from a fate that’s actually worse than centralized planning.  In Soviet-style economies, central planning worked within the framework of fixed resources and this led to rationing.  In the U.S. health care system, we don’t ration services. Instead, the government has a safety valve – the private sector. Insurers and Patients are expected to pick up the tab for whatever the government won’t pay for.

Government would also have to get comfortable paying providers market prices for services it funds through Medicare and Medicaid.  It used to be gospel that these programs deserved preferential pricing because the alternative would be uncompensated care arriving at the doorstep of providers and hospitals.  This argument may have had merit early in the development of these programs. But this argument has outlived its usefulness.  The time has come to move beyond social policies that deliver preferential pricing for these programs.  Pricing policies like this inflict grave harm on the larger market for health-care services.

Second, care providers would have to rationalize their business models and actually become familiar with what they’re charging for their services.  Many types of care are necessarily open-ended, because it’s often difficult to estimate or predict what the total price for a regiment of care will be.  Diagnosing a particularly vexing ailment is a good example of the kind of service that can be hard to create a fixed price for.  On the other hand, a routine physical is pretty straightforward.  So is a normal baby delivery.  Do you think your doctor knows what he or she charges you for services like these?  Probably not.

Third, Insurers, with a helping hand from a newly-restrained government, would need to recognize that their own practices help cloud the market for health-care services.  This begs the question: What good is a posted price for services if the actual cost to the consumer is significantly adjusted by a health insurer after the fact? 

Under many benefit plans, the only meaningful price distinction drawn is among those providers who are or aren’t in the plan’s network.  Provider competition and innovation on the basis of price isn’t going to come anytime soon in this world.

Is all of this going a bridge too far?”  Hopefully not, but a realist would have to conclude that achieving even a beach head with these changes represents a lot of heavy lifting.  It’s not that it can’t be done.  It’s just that in health care, we’ve come to believe that markets don’t work, and that even if they did, we would collectively suffer. 

In the meantime, how can we blame the health care market for not working when we don’t have the discipline or conviction it takes to bring it to life?

The Battle of the Bulge – America’s Obesity Epidemic

"Some people are born to fatness. Others have to get there."
Les Murray

The news lately has not been kind when describing the state of American health.  Last week, I shared a report that detailed the dramatic rise in diabetes worldwide, and in particular, within the United States.  Issued by the Trust for America's Health (TFAH) and the Robert Wood Johnson Foundation (RWJF),  F as in Fat: How Obesity Threatens America's Future 2011 reveals the continuing and worsening rise in obesity rates across the country.  According to the report, adult obesity rates increased in 16 states in the past year and didn’t decline in any state.

Twelve states now have striking obesity rates above 30 percent. Four years ago, only one state was above 30 percent.  To understand just how out of shape we’ve become, the state with the lowest obesity rate would have scored the highest rate of obesity in 1995!

The obesity epidemic continues to be most dramatic in the South, which includes nine of the 10 states with the highest adult obesity rates. States in the Northeast and West tend to have lower rates. Mississippi maintained the highest adult-obesity rate for the seventh year in a row. Colorado has the lowest obesity rate and is the only state with a rate under 20 percent.

Obesity is closely linked with other, severe health problems, most notably diabetes and high blood pressure. These, in turn, are precursors to other health risks.  The report shows how rates of diabetes and high blood pressure have also climbed dramatically over the last two decades.

Since 1995, diabetes rates have doubled in eight states. Back then, only four states had diabetes rates above 6 percent.  Now, 43 states have diabetes rates over 7 percent, and 32 have rates above 8 percent. Twenty years ago, 37 states had hypertension rates over 20 percent. Now, every state is more than 20 percent, with nine over 30 percent.

Obesity is nothing, if not epidemic. This year, for the first time, the report examined how obesity has surged over the past two decades. Twenty years ago, not one state had an obesity rate above 15 percent.  By contrast, today, more than two out of three states -- 38 in total -- have obesity rates over 25 percent, and just one has a rate lower than 20 percent.

Since 1995, when data was available for every state, obesity rates have doubled in 7 states and soared by at least 90 percent in 10 others. Obesity rates have grown fastest in Oklahoma, Alabama, and Tennessee, and slowest in Washington, D.C., Colorado, and Connecticut. What’s noteworthy is that obesity rates haven’t declined in any of the 50 states since 1995, the first year of this continuing study.

Obesity is complicated.  Its cause can often be as straightforward as too many calories stacked up against too little exercise.  Obesity can also manifest psycho-social factors that are harder to address.  Whatever the cause, individuals who suffer from obesity can find it as hard to conquer as cancer. 

We’ve been arguing quite a bit over the past few years about health care in the U.S. and who’s to blame for its high cost.  Depending on your point of view, you may believe that insurance company profits are the culprit, or that an inefficient delivery system is to blame.  Regardless of how important these factors are, it’s hard to ignore the reality we see face every morning when arise from a sound sleep and look in the mirror. We’re just not as healthy as we used to be. And we’re taking care of ourselves with far less attention than we used to.

For most of us, it’s not hard to see why we’ve become so overweight.  We walk and exercise less.  More than ever before, we consume more high-calorie, low-nutrient foods.  We lead more stressful lives than we did in the past and have difficulty de-stressing ourselves.  It’s not hard to imagine a lifestyle in which each of us gains 5 to 10 pounds each year.  Before you know it … well, you get the picture.

Two factors account for the unprecedented growth in obesity. First, obesity is a cultural issue.  We all live within a larger, cultural fabric that carries with it norms that pervade our thinking and influence our decisions about weight gain. 

Second, obesity is an individual health issue that carries with it huge, health-care cost ramifications. Each one of us will make progress on obesity only by mustering the individual courage it takes to tackle the characteristics of modern life that make obesity so hard to avoid and so easy to accept.  

For the Most Part, We Behave Ourselves into Diabetes, and Our Health-Care System Doesn’t Do Much about That

Think about it. Worldwide, 347-million human beings worldwide suffer from diabetes, according to a Lancet study released earlier this week. That’s more than the entire population of the United States and Canada combined. Throughout the world, the prevalence of diabetes has doubled over the past 30 years. In the United States, the prevalence of diabetes has tripled.

In the U.S., the dramatic rise in the number of people with this disease is troubling, and for good reason. Diabetes is almost entirely preventable. In fact, until the late 20^th century, Type-2 diabetes, the most common form, was unheard of. And so, in many ways, Type 2 diabetes can be thought of as a yardstick to measure how closely human beings live in sync or out of sync with the natural-health ecosystem. Looked at this way, we can say that we have strayed off the path, and don’t seem to be heading back toward it any time soon.

Of course, diabetes also comes at a cost. The Centers for Disease Control (CDC) estimates that diabetes treatment costs amounted to $116 billion in 2007. The CDC also indicates that because of diabetes, another $58 billion was incurred in lost productivity, absenteeism, and the like. What’s more, Americans with diabetes can expect to incur medical costs that are more than double what the rest of the population will incur.

Diabetes is also often accompanied by the onset of other chronic conditions, and account for much of the morbidity patients with diabetes face. According to the Medical Expenditure Panel Survey, most adults with diabetes have at least one co-morbid chronic disease, and as many as 40 percent have at least three.

Get the picture? More than 8 percent of Americans are diabetic, and this number has tripled in the past 30 years. Those with diabetes consume health care at twice the rate of the rest of society. And diabetes is often associated with the onset of other chronic conditions. You don’t need to plot this on a graph to know that we have a real problem.

The sad news–and also the reason for hope–is that diabetes is not only preventable, but apparently reversible. In a recent experiment, Newcastle University researchers found that an extreme, eight-week diet of 600 calories a day can reverse Type 2 diabetes in people newly-diagnosed with the disease. There are other examples of individuals who, through adopting a lifestyle of regular exercise and healthy eating, have reduced or minimized their diabetic symptoms.

Diabetes, closely tied to being overweight or obese, is perhaps the most important disease for us to get our arms around. It’s also the hardest to make headway against, because its onset is almost entirely behaviorally driven.

We have a pathway for making progress against this disease. Two-thirds of the population that’s overweight or obese can control diabetes in large part by adopting healthy diets, exercising regularly, and losing weight.

I know what you’re thinking. If only it were that easy.

Although a small portion of Americans are predisposed to diabetes, for most of us, diabetes is the inevitable consequence of lifestyle choices they’ve made that have ultimately taken a toll on the body’s ability to maintain a healthy state. The problem is, our health-care system doesn’t do a very good job when it comes to affecting large-scale, behavior change. After all, how many times have each of us been told to eat less and exercise more often? In the aggregate, how’s that working for us?

Our health-care system is most confident in dealing with specific conditions for which there is a defined treatment or cure. The system is not so good at affecting the behaviors of individuals.

Progress on the diabetes front requires a larger vision–one that is societal in scope. It involves changing how we think about our modern world by asking the right questions.

Is physical convenience always progress? Especially if it means we become more sedentary?

Is providing easy access to low-cost, high-glycemic-index foods good public policy? Are we willing to accept reduced access to, and higher prices for, these choices?

Is a fee-for-service payment system in which physicians spend 12 to 15 minutes with a patient the best way to relay the consequences of poor lifestyle choices and the consequences of diabetes?

We’ve got big decisions to make, as individuals, as health-care leaders, and as a society. We also don’t have much time to waste.