Real Health Care Reform-Part 4: The Providers

The third actor in health care reform is the provider- mainly hospitals and physicians. During the 1990s, there was a general shift towards chain hospitals through mergers and acquisitions. Citing economy of scale, they were permitted unabated. Unfortunately, this tipped the balance towards hospitals in terms of bargaining power with insurers, especially HMOs which saw a decline in popularity after the 1990s. By nature, chain hospitals are for-profit entities. In a decade, administrative costs at for-profit hospitals increased 34% compared to 24% for non-profit hospitals. A greater share of dollars were diverted to administration with little concern for patient outcome.

Also, the high costs at hospitals is attributed to mark-ups on medical supplies, prescription drugs and surgical supplies. One study compared the top 100 most expensive hospitals versus the 100 cheapest hospitals in terms of mark-ups. For the top 100, the average mark-up was 673%!! If a medical device cost that hospital $100, the patient was charged $673. The typical surgical hemostat costs a hospital $6.59 but at one of these top 100 hospitals, you will be billed $44.35 for its use. If you happen to be in a top 40 hospital, those same damn hemostats will cost you $69.20!!! Among the top 10% of hospitals in terms of mark-ups, they average $14.8 million in annual profits. The trend towards hospital mergers has actually driven costs up in that practices are not any more efficient now and mark ups have risen to perverse levels. Also, because hospitals formerly competed for admitting physicians in order to increase patients, they built and purchased more advanced technology, especially in radiology and surgery, to lure doctors. After the shift to competing for patients through insurers, those investments remained and had to be paid for and the patient became that source. If they have the technology, they are more apt to use it whether it affects patient outcome or not.

In California, engineers have shown that adjusting intake procedures can save not only time, but money. For example, a technician usually performs a 30-minute pre-screening process for a simple mammogram. In the interim, that technology sits idle. By moving this pre-screening process to the examination room, they performed 50% more mammograms. The layout of hospitals is also considerably cost-inefficient. For example, the bulk of readmission to a hospital is attributable to inadequate discharge instructions. A single averted readmission for congestive heart failure saves $8,000 per readmission. Things that require no increase in staff or hospital spending are actually discouraged. For example, an emergency room may be located on the first floor, radiology on the third and the pharmacy on the fourth. The chances of needing radiology and the pharmacy for an emergency room admission is greater than for any other type of admission. Take another example of technology gone awry and increasing costs for everyone- colon cancer diagnostics. There are two tests- the colonoscopy and the sigmoidoscopy. The former costs an average $3,081 versus $250 for the latter. Six million colonoscopies are performed annually costing $18.48 billion. Conversely, 500,000 sigmoidoscopies are performed annually costing $125 million. For the broad based detection of colon and rectal cancer, there is absolutely no difference in the efficacy of either test. Since there are 141,000 new cases of colon or rectal cancer annually, the bulk of them could be detected by the cheaper method. Yet, physicians by-pass the cheaper alternative altogether.

Several sources state that free market approaches to lowering hospital costs have not worked in the past. To them, I say “Canada and Maryland.” Furthermore, by incorporating coverage for the less costly procedure into policies, it would create downward pressure on costs. In Canada during the 1990s, the government, in response to increasing hospital costs, simply cut funding to the provinces. Many hospitals decreased the number of beds and diagnostic options which resulted in stability in hospital costs and no discernible negative effects on patient income. Maryland hospitals are perhaps the most heavily regulated in the country. The cost of over 10,000 procedures and medical interventions are capped by the state. In Maryland, the average mark up for prescription drugs and medical/surgical supplies is 120%. Compare that with the 673% at the top 100 expensive hospitals. In terms of patient outcome, Maryland has the shortest hospital stay length per capita, the lowest inpatient surgery rates and the lowest incidence of medical imaging services in the country. In all diagnostic categories, a resident of Maryland is no worse than any other American. And despite these cost controls, 67% of Maryland hospitals have reported an annual profit of at least $1 million.

With respect to physicians, American doctors earn more than their foreign counterparts. In 2006, the average income for a doctor after taxes was $119,300 or almost three times the national median, and about $300,000 for specialists. In 2009, 24% of all health care spending went into the pockets of doctors. Yet, despite highly paid doctors, better facilities and cutting edge technology, we lag behind our industrialized counterparts in many areas like life expectancy, infant mortality, and cancer rates.

Two reasons used to justify their high salaries is the cost of malpractice insurance and the cost of medical education. Here, the example of France makes intuitive sense. Provided the graduate after residence agrees to practice in a needed area or specialty, the government in France pays 100% of the cost of medical education. They are paid about $55,000 annually, but they are exempt from payroll taxes on that salary. This is a program that should be considered here. But here, the cost of a medical education averages $140,000. The Labor Department estimates there will be a 55,000 doctor shortfall by 2015. However, what the US needs more of is general practitioners, not specialists. The AMA estimates that if the doc-fix was enacted, 62% of general practitioners would retire. This is a major problem in the United States and a key to lowering health care costs.

It would certainly be to the advantage of the US, through programs akin to TEACH grants or ROTC, to pay for medical education 100% for general practitioners. Of course, it should be means tested. In exchange, they agree to practice in a needed geographical area for a specific period of time with a specific salary that would be exempted from payroll and federal taxes for the duration. It creates a contractual quid pro quo. This would require a $220 million annual federal investment, or $1.1 billion over 5 years, to get 55,000 general practitioners by 2017. It would be an incentive for medical school graduates to enter the field with no debt and serve the nation as a whole while decreasing health care costs for all.

Why? Why general practitioners? Currently, 35% of all doctors fall in this category. If that figure increased to 40%, the AMA estimates the following: (1) 800,000 less hospitalizations per year for a savings of $3.48 billion; (2) 4.8 million less emergency saving over $6 billion annually; (3) for a $1.1 billion upfront investment, the net savings produced would be $69 billion (assuming a 7-year commitment to service). The advantages are obvious from the cited literature, There is greater preventive service, chronic conditions are better managed, and patients are better satisfied. People with a PCP (primary care physician) spend 33% less than those without and their mortality rate is 19% lower. In areas with few PCP, there is an 80% increased chance of hospitalization. In areas and countries with more PCP, health care costs are about 33% below the national averages. Obviously, more general practitioners lower health care costs in the aggregate.

Medical errors result in 100,000 deaths yearly at an annual cost of $29 billion. Half of these deaths are avoidable, thus saving $14.5 billion every year. Despite a robust medical malpractice industry, obviously the plethora of ambulance chasing lawyers does not decrease medical errors. One way to decrease errors is through patient education and second opinions. One idea circulated was to create regional databases that essentially rate doctors. Instead, we got state insurance exchanges. Creating a de facto state-run Angie’s List for doctors where a wide variety of information is listed including, but not limited to charges and patient outcomes, further empowers the consumer. A perfect example is a pilot program in Massachusetts called Best Doctors. This may sound like Obama’s treatment assessment regimens, but it really is not. Instead of a government bureaucracy dictating the correct or most cost-effective treatments, those choices are left to the patient in consultation with their physician which is where these decisions rightfully belong, not in Washington DC.

That is why there should be more primary care physicians in order to coordinate treatments and the ordering of tests. More power in the health care equation needs to be placed in the hands of general practitioners and patients. The specialists should handle the truly special cases. Unfortunately, until there are enough adequate financial incentives to enter general practice, most medical school graduates will choose medical specialties.

Finally, another way to drive down costs is through the use of retail clinics, some of which have recently popped up in Wal-Marts around the country and other outlets. They provide basic medical needs without a visit to the doctor’s office or the more costly emergency room visit. Thus far, studies have shown that out-of-pocket at these outlets average anywhere from 30-80% below a doctor office visit. Most of them even accept most insurance plans, further driving down costs. Until there is an adequate number of general practitioners, this may be a decent bridge program to address health care needs.

As one can see, there is no shortage of ideas for improving health care options in this country while simultaneously driving costs down for everyone. As one can also see, it is usually the heavy regulatory hand of government or political inertia that prevents improvements. While the political branch sits and dithers, or creates monstrosities like Obamacare, nothing gets improved; indeed, it gets worse. It is disingenuous of Democrats and liberals to state that Republicans have no new ideas or that we are averse to all regulation. No- we are averse to stupid regulation and that is what defines Obamacare.

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