Controlling the High Cost of American Healthcare II. What are the Options?

As the readers of this blog know, I focus on what I consider to be our country’s biggest problems.  Right now the biggest problem of all is our rapidly growing and largely out-of-control national debt.  The only way we will solve our debt problem is to control the growth of entitlement spending, especially for public healthcare programs such as Medicare and Medicaid.  But the basic problem with these programs is the overall cost of healthcare in the U.S. which is far more expensive than in any other developed country.

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What are our options for controlling healthcare costs in the U.S.?

  • In “Overcharged”, the authors claim that $1 trillion of the total annual cost of U.S. healthcare of $3.5 trillion, is due to fraud, waste and abuse. There are thousands of whistleblowers in the healthcare industry who share in funds recovered from fraud but recovered funds are just a drop in the bucket to what is lost.
  • The price of new drugs can be outrageous. For example, the drug Soliris, to treat a rare blood disease affecting 10,000 people in North America and Europe costs $440,000 per patient per year for the rest of their lives.  Clearly at least some government regulation of drug prices is justified.
  • “Healthcare is expensive because it is insured.” If individuals paid directly for routine healthcare, costs would go way down.  Medical tourism and retail clinics such as Urgent Care would flourish, doctors would compete on price, and cost of treatment would drop dramatically. Of course, we would all still need high deductible catastrophic insurance for major health problems such as heart attacks and cancer.

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  • There are a variety of different models for healthcare systems in other developed countries but they all have one thing in common: “What other countries have learned is that without some form of price regulation, there is no effective check on prices.”

Summary.  There are various ways to lower the cost of healthcare in the U.S. such as cracking down harder on fraud and abuse, doing a better job of regulating new drug approvals and encouraging direct payment for routine healthcare by increasing the use of catastrophic health insurance.  But these approaches are all hard to implement and the only practical alternative is for government price regulation of some sort.  Healthcare prices must be dramatically lowered and if the free market can’t get the job done, then government price regulation will inevitably result.

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9 thoughts on “Controlling the High Cost of American Healthcare II. What are the Options?

  1. EXHIBIT A
    Who is the only citizen beginning in 1965 who could send a request to the Federal government for the reimbursement of professional expenses that would be paid within 3 weeks? Well, that is how Medcare began in 1965 for physicians. In 1960, health spending represented 5.0% of our GDP. During 2018, it was 17.8%. The increase follows Parkinson’s Law almost exactly (aka, work expands to use the resources available).

    EXHIBIT B
    During the same interval beginning in 1965, our nation’s maternal mortality ratio worsened from 6-7 deaths per 100,000 live births annually to a ratio of 25 deaths per 100,000 live births in 2016. Since there are nearly 4 million USA live births annually, there are approximately 1000 women who die annually in association with a pregnancy. Of these deaths, it is likely that nearly “700” died in 2016 because they lived in the wrong OECD (Organization for Economic Cooperation and Development) nation at the time of conception (see nations partially listed above). The USA is the only nation of the 35 OECD nations with a worsening maternal mortality ratio since 1965. Believe it or not, there is no widely accepted explanation for this problem.

    EXHIBIT C
    The United States is also the only OECD nation without a strategy to assure that adequately financed Primary Healthcare is equitably available to and ecologically accessible by each citizen. It is likely that a portion of the cost and quality problems of our nation’s HEALTH could be solved by a nationally sanctioned and community based collaborative process. Remember that our nation instituted a similar process for our agriculture industry in 1914. As a likely result, our nation’s agriculture industry is the most effective and efficient among the world’s developed nations, by a wide margin (viz, each county’s Cooperative Extension Service).

    EXHIBIT D
    Unfortunately, several problems have evolved that have prevented our nation’s healthcare industry from exercising its responsibility to foster true healthcare reform. Admittedly, substantial social adversities underlie the worsening or our nation’s HEALTH. In addition to maternal mortality, it is likely that child neglect/abuse, childhood obesity, adolescent suicide/homicide, teenage pregnancy, substance abuse/mortality, homelessness, mass shootings, adult disability/suicide, and decreasing longevity at birth (now four years in a row) are related to the decline of our nation’s social cohesion. Conceivably, community driven assurance of equitable and accessible Primary Healthcare should be associated with community based solutions to improve early childhood education and social mobility for every family. “The Capability Trap: Prevalence in Human Systems” as defined by Erik Landry and John Sterman (MIT engineers) applies. See below first citation below.

    EXHIBIT E
    To apply a risk management process to health spending, the findings regarding the management of a common pool resource applies. The academic career of Elinor Ostrom PhD (2009 Nobel Prize winner in Political Economy) was devoted to establishing the Design Principles underlying the successful management of a Common Pool Resource without centralized governmental involvement (as in southwest Nebraska’s multi-state water-rights collaboration for the Republican River). See the second citation below.

    Landry and Sterman https://www.systemdynamics.org/assets/conferences/2017/proceed/papers/P1325.pdf

    Wilson, Ostrom, and Cox http://dx.doi.org/10.1016/j.jebo.2012.12.010

      • I agree that a greater emphasis on Community Healthcare, especially including Primary Healthcare, would improve our nations health outcomes a significant amount. But I’m skeptical that it would save a lot of money. There will always be a relatively small number of unhealthy people whose healthcare is very, very expensive. It is these very expensive treatments whose costs need to be reined in with price controls of some sort. Every other developed nation has healthcare cost controls of some sort.

  2. Agreed! The quality problems lend themselves to distributive processes, even if less certain given the differences of community social cohesion that currently exist. The cost issues, aka health spending problems, will be more difficult to solve given their long-standing, entrenched economic paradigm.

    “If you do what you’ve always done, you’ll get what you’ve always gotten.”

    This aphorism surely applies to the social responsibilities of our nation’s institutional structures, at all scales. So, what to do? Well, given the degree of institutional codependency between the payors for healthcare and the providers of Complex Healthcare that has occurred, I suspect that the answer for controlling health spending will need to represent an awareness that the national funding for under-graduate (medical students) and post-graduate (interns and residents) medical education MUST be part of the health spending reconfiguration. In sum, the reconfiguration will need to apply behavioral economics (not to be confused with mental health economics) to the capitalization of Primary Healthcare AND medical education. That said, another essay should be considered. See the book, MISBEHAVING (2015), written by Richard H. Thaler.

    • I agree that society has to figure out how to pay for medical education which is obviously very expensive. But again, the main focus of cost control has to be on the most expensive procedures for the most serious health conditions. It is these costs which are so totally out of control and must be reined in.

  3. If a Primary Care Physician (PCP) has access 1) to real time health spending by a panel of patients, 2) how this panel of patients during a one-year time span uses the over-all premium dollar available for those patients, and 3) how the hospital costs of these patients compare to similar cost profiles from other hospitals or groups of specialists, it won’t take long for charges to decline. The individual panel’s actual individual health spending would be stop-loss protected for actuarial purposes and then compared on a rank ordered basis with the other community PCP panels. With slowly evolving success in managing the overall health spending by a panel of patients, additional resources could be applied to enhancing the work environment for a PCP group (viz, have all RN qualified nurses answer the PCP patient telephone line). Medial Triage would soon produce an even further decrease in overall health spending by the PCP group. Part of any improvement could be allocated to medical education within the PCP Group’s State medical schools. All of sudden, the medical schools would have an even greater appreciation for the importance of high quality primary health care.

    • I have no doubt that what you propose would work very well. Is there any data out there to verify it? If not, an experimental trial should be set up to demonstrate your suggested approach. How could we get attention from national healthcare officials to implement this?

      • Model proposed actually occurred here in Omaha as the old Share Health Plan, a Primary Healthcare capitated, Complex Healthcare risk-sharing HMO. For seven years, our office group had hospitalization utilization that occured at a level that was 1/3 less than the healthplan as a whole for both the employer based insurance groups and the medicare-eligible insurance group.

        My efforts to alert national representatives within either elected or healthcare institutions have generally been ignored. Reference to this arena of knowledge has led me to a black-list status on several healthcare blog sites. It seems that the folks in Congress should eventually ben engaged after the next election, especially by the Sub-Committees that sponsored the Accountable Care Act of 2010. A major donor would need involvement. That would be unlikely given that group of institution’s connection with university-based philanthropic demand. The Robert Wood Johnson Foundation may be more interested among the foundation. But given the need for a Congressional Charter, I doubt it.

        I can only say that one study has clearly demonstrated the reverse causality between Trust and Self-reported Well-Being (SRW). That is, the improvement of a person’s Trust eventually improves a person’s SRW, which will eventually improves a person’s capability for trust. It seems like a very powerful connection (viz reducing maternal mortality, mass shootings, etc.).

        See gn giordano and m lindstrom. TRUST AND HEALTH: TESTING THE REVERSE CAUSALITY HYPOTHESIS (2015). at http://dx.doi.org/10.1136/jech-2015-205822

        NOTE: So a scandinavia research group using United Kingdom data. How unique is that! They published a subsequent paper using survey data connected to the implementation of ACA 2010 (Obamacare).

  4. The study by Giordano and Lindstrom is very good but probably too general and abstract to convince hardheaded health officials. Why don’t you write up the results of your own seven years of experience and submit it for publication to a nationally prominent journal. Maybe you could get your buddy (?) Hank Aaron to run interference for you, so to speak. Perhaps the people at the think tank “Fix the Debt” and the associated group “FixUS” would be interested. I have contacts at these places.

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