It’s the Price Stupid is the title of a seminal paper in Health Affairs that concluded that the United States pays more for health care and receives less than in other developed countries.
It is also a theme resurrected by Alec MacGillis in a Washington Post article last week.
The argument goes like this. The United States pays more for health care than anywhere else on the planet, as much as 50% more than the average for other developed countries.
Yet we get fewer services; fewer physician visits, fewer hospital admissions, fewer days in the hospitals. It doesn’t take a Ph.D. statistician to conclude that we are paying too much per unit of care.
But does health care reform fix it?
To MacGillis cost controls means price control.
It is not clear to me that the higher unit cost in the United States translates into higher physician incomes. How much of that higher unit cost is siphoned off by high administrative costs in terms of provider billing costs and insurance company overhead? Someone needs to answer that question.
The Patient Protection and Affordable Care Act (ACA) does address cost control, but not in the way that MacGillis and others would prefer. According to its critics, the ACA attempts to control costs by controlling the volume side of the equation; curbing the total costs by limiting the number of services that are performed.
Actually, what the ACA does is offer incentives to redefine the nature of the “service”. Under the fee for service model, providers bill and are reimbursed for every single thing they do: each lab test, each image, each physician office visit, each item of surgical or medical supply.
But just what is a health care good?
Is it the individual pieces, or is it a larger, more global, good: an image, a surgery, an illness or injury, or the health of a population?
Providers will counter that each patient presents a unique set of symptoms and pre-existing conditions and that setting a fixed price for a specific episode of care, may encourage physicians to skimp on care.
And in the Lake Wobegon world of medical practice, every doctor treats patients that are above average in severity and complexity.
Imagine that cars were priced like medical services. You might go to the dealer and find that your car is priced $2,000 higher. Why? Because while it was coming down the line, there was a breakdown and the extra time on the assembly line cost an additional $2,000.
Manufacturers build those mishaps into their price. They do that because, unlike medical care, they know their customers will not pay for mistakes. And by doing so, the pricing strategy is an incentive to the producer to reduce errors in the production process.
Paying for “call backs”
The same logic should apply to medical care.
A more global definition of medical service will offer incentives to deliver more efficient care. Critics say it will encourage providers to deliver fewer services.
When I was younger and working as an apprentice refrigeration mechanic, the mechanic I worked with used to joke, “Doctors are just like us. They are meat mechanics. The only difference is that they get paid for their call backs.”
The idea behind global reimbursement strategies is to reduce the number of “call backs” by reducing the incentives.
The market imbalance
But there is one point to “the price is the problem” argument that is valid. They all decry the “market imbalance”; the increasing market power of the price setters and the weak and fragmented market power of the purchasers. Those of us in the private sector are well aware that when government cuts its reimbursements, providers simply charge their private payers more.
If price is the problem, there can be only one workable solution – coordinated purchaser negotiations with the provider community. That is sometimes called an all-payer system or, horror of horrors on this Halloween, rate setting.
Berenson, Ginsburg, and Kemper concluded: “Unless market mechanisms can be found to discipline providers’ use of their growing market power, it seems inevitable that policy makers will need to turn to regulatory approaches, such as putting price caps on negotiated private-sector rates and adopting all-payer rate setting.”
I cannot think of a more compelling “market mechanism” than for the purchaser community to say to the provider community, “This is how much money we have to spend on health care. You figure out how to deliver care efficiently to our population.”
That would be a global reimbursement strategy that just might challenge the role of the insurance company.