Self-Regulation or Government Regulation: Which Is Better for Hospitals and Health Systems?

Don’t look now, but systematic efforts to lower costs and improve efficiencies may be taking hold within health care organizations. Recently, USA Today ran a story describing how the Bon Secours Health System and the Banner Health System are achieving this.

Among other things, Bon Secours Health System is giving fewer blood transfusions during heart surgeries. Counter intuitively, perhaps, this is improving care, and costs are falling with marked results.

The share of patients receiving transfusions fell to 42 percent from 66 percent, the average amount of blood transfused dropped by two thirds and the system saved $1.1 million. What’s more, the complication rate dropped along with the length of time people spent in the hospital.

This is all well and good, but such an achievement begs some questions: Why are these achievements making news now? Why is this such a big deal? After all, businesses have long known the value of working more productively and shaving unnecessary costs. Why hasn’t our health-care system?

Some answers to these questions lie embedded in certain biases within the health-care culture that have gone unexamined. Here’s one: It’s better to err on the side of over treatment than under treatment, whatever the cost. This has translated into the maxim: If some is good, more is better.

As a corollary, hospitals and health systems have traditionally relied on physicians to deliver health care for patients without budget restrictions. In one sense this is understandable, because doctors have served as patient sources for hospitals. And employing doctors and promoting them to prospective patients has helped to boost the patient draw.

Here’s another unexamined bias: In their competition with each other, hospitals and health systems have focused exclusively on growing revenue. They’ve paid little or no attention to cost management. No wonder, then that greater productivity and cost reductions have languished like neglected step children.

Still another bias has been to rely on physician impressions relative to health care procedures rather than on hard, measurable data. This, too, is changing.

The same USA Today article reported that the Banner Health System analyzed data on the use of adhesion barriers –pieces of film or fabric—to prevent abnormal scarring following abdominal and pelvic surgery. Some Banner hospitals used the barriers during 79 percent of C-sections, and others used them less than 1 percent. Data analysis data revealed that the barriers made no difference.

The upshot: Banner has used the barriers for C-sections in less than 1 percent of C-sections in 2011 and has saved more than $1 million.

All of which brings to mind a truism about health-care in our United States, and it’s this: If you don’t self-regulate the way you do business, something else will soon come along to regulate your business for you.

In the United States, that something else is the federal government. We’ve already seen this happening with Medicare and Medicaid exercising what many consider to be loathsome price ceilings on health-care services.

The steps the Bon Secours Health System and the Banner Health System have taken are teaching us that the best way to manage health care costs in our free-market economy is to self-regulate. Otherwise, our government will do it for us.

Our Dysfunctional Health-Care System: Can Cost Cutting Heal It?

The number of Americans who have health insurance through their employers is dropping with unprecedented speed. The latest Gallup and Healthways, Inc. survey reveals that in the third quarter of 2011, only 44.5 percent of Americans now carry health insurance through their employers. That’s a decrease of more than 5 percentage points in three years.

As fewer employees enjoy health-care coverage through their employers, they’re paying more for the privilege. According to the Commonwealth Fund, premiums for employer-sponsored family health insurance policies increased by 50 percent from 2003 to 2010.

In fact, the annual amount employees pay toward their insurance has risen by a whopping 63 percent over that timeframe.

As sobering as these statistics are, they only skim the surface of an underlying problem. Over time, our health-care system has morphed into a dysfunctional state, and now resembles a dinosaur teetering under its own weight.

Our current system suffers from two, life-threatening disorders. The first is a market bias to provide the very best health care no matter what the cost. This cost push has moved steadily up even as consumers have been shielded from the true costs of their health care and are now shouldering more and more of the cost burden.  They just don’t know the cost of what they’re buying.

Look at it this way. Consumers are familiar with the cost of gas. They haven’t a clue about what health-care services cost until they get socked with a bill, even though they are the primary purchasers of these services.

The second disorder is this: Unlike other consumer purchases, in health care, price and demand carry no equilibrium-creating pressure to put the brakes on rising costs. If gasoline gets too expensive, people can drive less and prices fall. If the costs of health-care services soar, consumers have not had any effective way to make prices fall. For the most part, they don’t use less health care, at least not yet.

The rub comes in as employers are hit with rising insurance costs. Simply put, employers are typically willing to pay increased premiums if the increases are in line with inflation and if their cost structures allow for them. If the increases exceed these criteria, they pass the cost increases on to their employees.

All of which begs the question: How will consumers be able to keep supporting the staggering increases in health care? The answer is: they won’t. And this suggests that the system is fast growing more dysfunctional, will soon fail to support its own weight, and will fall apart. Unless, that is, something major is done.

Some health-care systems are already scanning the horizon and learning what other industries instinctually know how to do when costs unreasonably outpace demand. They’re searching for ways to cut costs. What a novel idea for health care.

Others are looking to the federal government to step in and shore up our dysfunctional - system. Ironically, government is a big part of the problem. Given the rigid, non-compromising philosophies now driving the health-care discourse in Washington, government stands frozen in grid lock without the resilience to find or even discuss solutions. Thus, nothing gets done.

And as we know, through Medicare and Medicaid, the federal government unilaterally establishes the prices it pays for health-care services and leaves hospitals and physicians to right size their incomes by digging deeper into the pockets of their customers.

Just as important, Washington today moves with a vacuum of leadership and without a shared vision of what should be done. And so the health-care dysfunction continues.

Without a resolution at hand, our health-care system risks turning into a non-caring force in favor of those who can afford its services. Those with the money to pay will receive the health care they need. Those who can’t pay will go without.

In the meantime, the best course seems to be to do whatever we as individuals can do to keep ourselves healthy so as to minimize our reliance on this dysfunctional system.

As We Eliminate Life-Time Benefit Caps on Health Insurance, We Continue to Short Change Ourselves on Health Care

Thanks to a provision in the Patient Protection and Affordable Care Act, we’re living in the midst of one of the more significant changes in American health care – the elimination of life-time benefit caps on individual, health-insurance policies.

Between September 23, 2011 and September 23, 2012, the annual limit capped out at   $1.25 million. And between September 23, 2012 and January 1, 2014, the limit rises to $2 million. After January 1, 2014, caps will cease entirely.

The elimination of life-time benefit caps comes as a welcome change by those who are insured. But nothing is unalloyed. Consumers will encounter increases estimated at two to three percent to compensate health insurers for the costs that result from the caps elimination.

The end of caps on health benefits will have scant effect on many insured.  Comparatively speaking, few would have reached pre-2014 caps in their coverage. The real value of the elimination will be felt most people who require health care that’s extraordinarily expensive. They include people who suffer from chronic illnesses like hemophilia, cancer, HIV AIDS, diabetes rheumatoid arthritis, and heart disease. Costs to treat these conditions can sky rocket into the high six figures in a single year.

Some months ago, I wrote about Edward Burke, a resident of Palm Harbor, Florida, who was diagnosed with hemophilia at an early age in 1960 and suffers from Factor VIII deficiency. According to the National Hemophilia Foundation, about one in 5,000 males born in the United States has hemophilia. All races and economic groups are affected equally

Factor VIII created by drug companies early in the 1970s was a god send for Burke. This chemical takes the place of the blood factor that enables clotting in non-hemophiliac individuals but is lacking in people with hemophilia. Factor VIII has enabled Burke to lead a life that’s close to normal.

But Factor VIII doesn’t come cheap. This chemical costs nearly $1 million a year. At this rate in the past, he reached his lifetime health insurance caps in no time, and had to change employers and health plans frequently to renew his health coverage with new plans.

The unspoken social bias at work here is that we, as a society, should do whatever it takes to deliver the best of health care to whomever needs it, regardless of the cost. But this bias begs the question: Why must it cost such staggering sums to deliver health care to people who suffer from debilitating and life-threatening conditions? And this raises the ultimate dilemma that looms before us: How are we going to pay for our future health-care needs?

In the April 2011  paper titled “Health Care Spending in the United States and Selected OECD Countries, the Kaiser Foundation lays it out with abundant clarity:

“This issue is particularly acute in the United States, which not only spends much more per capita on health care, but also has one of the highest spending growth rates. Both public and private health expenditures are growing at rates which outpace comparable countries. Despite this higher level of spending, the United States does not achieve better outcomes on many important health measures.”

Clearly, we are not only spending more on health care than other countries In the bargain, we are short changing ourselves on health care and will continue to do so until we resolve this woeful situation.