A diagnosis of cancer is accompanied by emotions of uncertainty, sadness and fear. Since medical issues are a significant factor in personal bankruptcy, even for those with health insurance, learning that the local premier cancer research center and the largest local health insurance provider cannot come to an agreement for the benefit of cancer patients is very unwelcome, anxiety-provoking news.
This dust-up between two local premier not-for-profit health care entities provides the opportunity to review how we pay for health care services and discern the best way to improve the health of our people. The issue is important to all of us, not just those with cancer.
In most economic situations, businesses calculate their costs for providing products and services and determine whether or not there is sufficient opportunity for profit to warrant the risk of their capital. Suppliers and producers negotiate charges based on economic realities. Economist Adam Smith described this market self-regulation as the Invisible Hand Theory.
But in health care services, charges are notoriously not linked to the cost of delivering those services. The New York Times recently reported that knee and hip replacement charges varied from $15,000 to $110,000, ostensibly for similar services.
Harvard surgeon Atul Gawande, in a piece in the New Yorker, reported that two Texas towns were comparable in everything except for their costs of medical care and, that, shockingly, the more expensive town, in fact, had lower-quality scores.
These charge discrepancies arise because most consumers (patients) are not the actual purchasers; the insurance company is. In most non-medical purchase decisions, the buyer makes a judgment on the necessity, desirability and affordability of the product or service and then decides whether or when to make the purchase. For example, in deciding about dinner, it could be at home or in a restaurant, it could be fancy or fast food, beef or beans. A decision is made by desirability and affordability. If there was no personal financial impact of such a decision, one might spend more time in four-star restaurants!
Despite co-pays and deductibles, the patient has little economic skin in the health care services game. An insured patient is mainly concerned whether a recommended medical service is a covered service and trusts that the provider's recommendation need not be questioned. No Invisible Hand in sight!
The commercial insurance company has significant administrative costs including executive salaries, overhead, and marketing. In addition, the for-profit companies seek to provide a return on the investment for their stockholders. The Affordable Care Act seeks to control that by requiring that companies spend 80 percent to 85 percent of the received premiums on actual medical care, including quality improvement, technically described as the Medical Loss Ratio. It is appropriate to consider what is the value added to health care from this 15 percent to 20 percent of premium not going to health care services. High-overhead commercial insurers are being compared to the low overhead of traditional Medicare.
The payment practice which pays for the number of services is being replaced by Accountable Care Organizations, tasked with improving the safety and quality of care and reducing health care costs.
As we consider the affordability of providing universal basic health care, we need to acknowledge the direct and indirect cost to our economy of the uninsured. Folks ill with preventable and treatable illness are measurably less productive. The public debate should not be narrowly framed as "can the nation afford the cost of providing access to universal basic health care," but rather, can we afford not to?
Health care services reform will be best if everyone gets informed and involved.
Larry Donohue, M.D., is a retired practicing physician who lives in Seattle.
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