A real solution for Healthcare costs

The healthcare industry in the US is $3T, of that $2T is spent on doctors, hospital, and prescription medicine.  The rest is on non-physician clinical services, infrastructure, insurance overhead, dental, durable goods (i.e. contacts), non-durable goods (thermometers), government spending and so on.  Let’s take that $2T for starters:

  • This is the substantially higher that the rest of industrial world.
  • Our outcomes are not substantially better

So for all our extra spending we actually don’t do that much more.  If you look at cancer cures, heart conditions, infant survival, and so on you don’t see major improvements compared to other nations.  This is not to say our doctors are much worse, or that our outcomes are wors – they aren’t.  What it says is that there is a lot of excess cost built into our system.  We pay the most per physician year (that is our doctors are paid much better than docs in France) we pay the most per hospital bed (even though we spend less time in them) and we pay the most for Rx treatment.  So lets go through a few simple solutions.

Doctors: We pay our doctors a lot.  I mean a whole lot by international standards.  Normally the response would be more people going into medicine and downward wage pressure.  Not so for doctors.  You see, doctors have to complete a residency and the number of residency slots are capped nationally.  This means regardless of wages you will never have enough doctors.  There are a few easy solutions

  1. Increase the number of residencies:  Personally I do not favor this since it is the government stepping in to order a private organization to do something
  2. Allow other medical experts to do Physician type work:  I like it.  Family Nurse Practicioners are great, and if you don’t like one go see a doc instead.  However, I ought to have the option to have a FNP check out an ear and write a script.  If it turns out I have cancer then I will go to an oncologist.  Most routine office visits could be handled by an FNP or PA quite sufficiently
  3. Stop requiring double credentialing: Med School should be sufficient to demonstrate medical skills necessary to practice.  But then so should board exams.  The only point in requiring both is to introduce artificial barriers to entry.  One or the other.

Hospitals: I don’t know if you have read through an itemized hospital bill, but it includes each pair of glove used, and each Ibuprofen given.  We need far fewer things to be reimbursable.  For instance,  routine labor and delivery should be a single item.  If you want to add epidural as a separate category then go ahead and do that.  However, there should be a single cost for L&D, not a full list.  Itemizing each thing encourages the hospital to rack up the bill, if you reimburse for the full thing instead the hospital has an incentive to lower the bill.  Somewhere around 40% of hospital spending is at least somewhat plannable and routine (cancer, hip replacement, labor and delivery, planned surgery, and so on).  Granted this does not cover emergency procedures, but if you can cut the spend dramatically on 40% of hospital stays you have done pretty well.

Rx: Insurance companies cannot deny lifesaving drugs.  Pharmaceuticals know this and so have freedom to charge whatever they want for treatments.  The requirement to pay for lifesaving drugs should be limited to off patent therapies.  You come out with a great new cancer treatment that costs $20k per therapy – fantastic.  You charge $200k per course and the insurance company is allowed to deny coverage.  Also, evergreening needs to go away.  When a company makes a new drug they get both a patent and an exclusivity right to sell that drug in the US.  If they improve the treatment in the delivery or some other way the original patent still expires at the set date, but the exclusivity can be renewed.  In this way insulin (patented in 1923) is still under exclusive production rights and no generics exist.  Get rid of the exclusivity protections 10 years after introduction to market.

Cost Sharing: Get rid of all tax benefits for insurance and instead allow an arrangement like 401k for HSAs with tax preferred contributions into HSAs.  This would encourage high deductible catastrophic coverage with most people paying for most services “out of pocket.”  Make personal contributions up to a certain limit applicable for refundable tax credits.  That is, if you make no money we will give you a couple thousand to put into your HSA per person in your family.  The reason to do this is that there would no longer be a need for Medicaid at all – it is taken care of by the credit.  The fact that people will have to pay out of their account (even if the money was given to them) incentivizes patients to seek low cost care.

Conclusion: These are all fairly minor changes, and well within the ability of Congress to enact.  The Doc cost can even be taken care of largely at the state level (change licensing requirements).  The Rx cost can be managed by changing rules and regulations not laws, and so doesn’t even require Congress.  Hospital reimbursements can be handled by changing the way Medicare accepts billing which is at the discretion of HHS.  The HSA treatment would likely require an act of Congress, but allocating all dollars currently directed at Medicaid to be paid directly into HSA accounts for the Medicaid eligible population would probably be popular for Medicaid recipients.  Granted, none of these is a magic bullet, but if you can bring down Rx by 20%, Hospital reimbursement by 20%, Physician reimbursement by 20%, and make policies that get people to use less care then you probably can make a real and lasting impact.