Healthcare Costs Threaten America’s International Prominence
The current American mainstream approach to lowering healthcare costs has a fatal flaw that will prevent it from achieving its goal. Despite the utopian salesmanship by progressive activists and politicians, socialized medicine will only exacerbate the problem.
We’ve all heard these statistics before. But that doesn’t mean we should forget them. Overall healthcare expenditures, including both private and public spending, are expected to increase by 5.5 percent per year over the next ten years. In 2017, American healthcare spending totaled $3.5 trillion. This number will increase to $6 trillion by 2027. The growth rate of healthcare expenditures is outpacing the growth of the economy. In 2017, healthcare represented almost 18 percent of GDP. By 2027, healthcare spending will make up one-fifth of total GDP.
In the past couple decades, the government’s strategy has been to force hospitals to reduce costs. The Centers for Medicare & Medicaid Services (CMS) is the single largest payer for health care in the United States. It has incredible leverage to influence health systems’ behaviors. If CMS blacklisted a hospital, meaning the hospital would not be eligible for medicare reimbursement, the hospital would quickly go out of business. Hospitals simply do not have a choice in the matter. Commercial insurance payers have followed CMS’s lead on this issue.
While this might sound like the tyrannical government asphyxiating a massive portion of the economy, the reality is much more complicated. The government is correct in believing that healthcare expenditures cannot continue to rise. Rocketing healthcare costs are a threat, not just to America’s economic prominence in the global marketplace, but also to its domestic prosperity and its fidelity to its own ideals. Businesses are being strangled under the weight of continuously increasing healthcare insurance premiums.
Libertarian Premises Aren’t the Answer...
Much to the chagrin of free market fundamentalists and libertarians, this is not a problem that can be solved by deregulation or budget cuts. Unlike consumers in normal markets, patients suffer from asymmetry of information. When a normal consumer is hungry, they can go online and look at the menus of different restaurants. They can see the prices, descriptions of the dishes and reviews by previous customers. Additionally, in this transaction, it’s apparent who the payer is.
Obviously, this is not the case in healthcare situations. Who pays is contingent on the patient’s insurance company, his type of coverage, whether he has met his deductible, whether he is inpatient, ED or an observation patient, and many other variables. The patient might pay for all of the costs themselves if they don’t have insurance or if a self-pay discount is offered. This information is almost never available to patients in real time.
Most importantly, the restaurant shoppers are in charge. They decide what items on the menu they order. They are in total control of their experience. Patients do not enjoy total control of their care plans nor do they have access to transparent pricing information. It’s also worth noting that this asymmetry of information isn’t simply due to hospitals hiding information from patients. Most hospitals’ cost accounting systems are not robust enough to be able to precisely predict inpatient prices.
Health systems have started to publish generic pricing information and they’re not publishing more specific information because they’re evil. They don’t do it because they can’t do it. A legion of variables affects healthcare prices and many of these variables, such as risk adjustments and diagnostic coding alterations, don’t come into play until weeks after the patient has been discharged.
Bad Incentives Lead to Bad Behavior
Until recently, hospitals enjoyed a “fee-for-service” reimbursement model for all patients. That means that they were reimbursed for every service rendered to the patient. When every procedure, exam or treatment is fully reimbursed, hospitals are incentivized to perform as many procedures as possible on a patient, regardless of whether the services are medically necessary or whether the patient can afford it. In this purely profit-driven reimbursement model, the hospital’s profit margin and stewardship of the patient’s resources are pitted against one another. Most patients are not medical experts and they rely on their care providers to tell them what services they need. Unless patients want to leave against medical advice, which is a terrifying prospect to most people, patients have no choice but to go along with their care team’s recommendations.
Additionally, in pure “fee-for-service” models, the level of reimbursement is not conditional on the quality of the care provided. So, not only are hospitals and healthcare providers motivated to charge patients for medically unnecessary services, they also are not constrained by quality concerns, except for legal liability caused by gross incompetence, which results in severe patient harm. And remember, the patient is not in control of his or her care plan and no pricing information is available.
To combat this, the government has employed a number of tactics. Two of the most important are value-based purchasing and capitation. These two strategies combat the lack of quality control and the incentive to overcharge patients, respectively. Value-based purchasing, in a nutshell, means that the level of reimbursement a hospital or care provider receives for services rendered is based upon the quality of care. This is a pretty intuitive concept. It is a good thing for healthcare providers to be incentivized to provide quality care. In some instances, hospitals are penalized for providing sub-optimal care. For example, if a patient is discharged from a hospital and readmitted within a 30-day period, the hospital will be subject to fines. In other cases, hospitals can be rewarded for providing outstanding care. In some states, DSRIP funds (short for Delivery System Reform Incentive Payments) are awarded to top-performing providers that meet the “Triple Aim,” which refers to population health, per capita cost of care and patient experience.
Problems that Masquerade as Solutions...
Unfortunately, a huge aspect of value-based purchasing involves patient experience surveys, which put the onus on clinicians to not only provide quality care for the patients, but also to please the patients in the way that a likable waiter pleases restaurant patrons. The Patient Protection and Affordable Care Act, also known as Obamacare, included HCAHPS as one of the measures to compute value-based incentive payments. HCAHPS stands for Hospital Assessment of Healthcare Providers and Systems. The Centers for Medicare and Medicaid Services (CMS) administers the survey and any hospital that takes Medicare payments is required to have their patients surveyed. Hospitals that fail to report can be heavily penalized and those with better or worse scores than their peer hospitals will be either financially rewarded or penalized.
Nurses and doctors are medical professionals with advanced skill sets. They’re not servants or waitresses. Patient experience surveys have moved hospital administrators to attempt to create a hotel experience for patients so that survey scores improve. This is a ridiculous notion. Creating a patient experience of luxury is not in alignment with the goal of reducing cost while maximizing quality. Furthermore, a patient’s preference or desire is not always in their own best interest. On October 1, 2019, questions related to pain management were removed from the survey. This was done because questions that prompt patients to rate how their pain was managed provide physicians with an incentive to over prescribe narcotics and to capitulate to the demands of drug seekers. It’s possible for a patient to receive efficient, state-of-the-art medical care and, because they didn’t like the hospital food, the patient might give the hospital a poor overall rating. This is a deeply flawed methodology.
Putting a Cap on Costs
Capitation, on the other hand, mitigates the incentive for hospitals to exploit patients by overcharging them unnecessarily. Capitation means that for a particular service, a hospital or physician will receive a fixed amount of reimbursement. For example, a hospital might be given a fixed sum of money to care for a patient who is getting a total knee replacement or was admitted due to heart failure. In this case, the hospital is given an incentive to not order unnecessary tests or services because such wasteful procedures will eat into their profit margin. If the hospital wants to make money, the total cost of care cannot exceed the capitation lump sum payment. Capitation puts hospitals and physicians at financial risk when caring for patients. Together, capitation and value-based purchasing motivate healthcare providers to simultaneously maximize quality and minimize cost – a difficult goal to achieve.
You’ll notice that value-based purchasing and capitation payments put all of the burden of lowering healthcare expenditure on hospitals, physicians and other care providers. An implicit assumption of this approach is that it is the job of the hospital to make the patient healthy. Think about that. Making the patient quote/unquote healthy and caring for the patient while they’re in the hospital are vastly different things. The latter is a discrete, finite period of time. The former is an ongoing task.
The drive to keep large swaths of people healthy, with a huge focus on preventative care has developed into a new approach called population health. The emphasis on population health has motivated hospitals to develop interconnected and easy-to-navigate care networks that enable a patient to move smoothly through the entire spectrum of care – from routine primary care physician visits to outpatient labs and radiology to an inpatient stay in the ICU. This is obviously a good thing because hospitals are now incentivized to do things that keep patients healthy so they won’t go into the hospital, which is not in the best interest of the patient.
Humans Have the Power of Choice
While these strategies are great starting points, they will not solve America’s healthcare problem. Any solution to a human problem that does not recognize the moral agency of human beings will not be successful. Every person makes choices and those choices impact every person’s outcomes. Health is an outcome. Our choices have profound consequences for our health.
America’s per capita healthcare expenditures aren’t only due to asymmetries of information and wasteful fee-for-service reimbursement models. America’s healthcare costs are soaring because Americans are unhealthy. The average American male has a body mass index (BMI) of 29, which is just shy of the medical definition of obese: 30.
In 2013, a study by the Institute of Medicine and National Research Council found that out of 17 affluent countries, which include Japan, Switzerland, Australia, Italy, France, Spain, Canada, Sweden, Austria, Norway, Netherlands, Germany, Finland, United Kingdom, Portugal, Denmark and the U.S., the U.S. had the worst health rating. A 2016 study published in the Mayo Clinic Proceedings found that less than 3% of Americans meet the qualifications of a healthy lifestyle, which include:
- No Smoking
- Moderate or Vigorous Exercise for at least 150 minutes a week.
- A diet score in the top 40 percent on the Healthy Eating Index
Notice one thing about this map. All of the European countries, such as Norway, Sweden, Switzerland and Denmark, that progressives like Michael Moore, Bernie Sanders and other left-leaning figures love to reference when touting the successes of socialized medicine and single-payer healthcare systems, are ALL healthy. They don’t have the obesity rates that the United States does. They don’t have the cardiovascular disease rates that the U.S. has. They don’t have an epidemic of childhood obesity or huge numbers of young people with Type II diabetes. These countries’ healthcare costs are not low because of socialized medicine. They’re low because their populations eat healthier, exercise more and engage in regular preventative care. Additionally, these countries’ immigration rates are far lower than the United States, which means they have less illegal or low-skilled immigrants. Lower income individuals tend to be less healthy.
On March 6, 2019, Bernie Sanders tweeted:
“In the United States, it costs $12,000 to have a baby. In Finland, it costs $60. We’ve got to end the disgrace of our profit-driven healthcare system and pass Medicare-for-All.”
Several days later, Finland’s government resigned because its health reform failed. The country’s healthcare system gradually buckled under the weight of its massive cost structure. While Finnish citizens are far healthier than Americans, they do face other problems, which all countries currently face. Over the past several decades, as capitalism and democracy have spread across the world, improvements in medical technology have followed. People live longer as a result. When the median age of a country increases, healthcare costs also increase. To make matters worse, while more money is being taken out of the system, less money is being fed into it.
A high number of pensioners are being supported by a low number of workers. The country simply didn’t have enough taxpayers to fund the system. This was not the first Finnish administration to fail to pass healthcare reform to curb spending. No administration has been able to accomplish that feat for the past twelve years. Finland also has all the typical problems of government-run healthcare institutions, such as the VA: there are no productivity incentives and it can take months to get an appointment. Bernie Sanders touts Finland as an example of socialist medicine’s success when it’s actually an example of failure.
The danger of socialized medicine is the danger of any enterprise that wants to be guided by a centralized authority instead of by market forces. First of all, as has been the case with higher education, when prices are not determined by the market, price increases are much harder to reign in. The sky-rocketing college tuition rates in America are a testament to that. Once again, single-payer systems in Europe are able to service their populations because the populations are extremely healthy. If those same systems were implemented in America, with America’s health problems, prices would skyrocket. Second, without some form of a market system in place, there will be no catalyst for innovation. Countries with government-run healthcare are not producing cutting-edge cancer treatments or other high-tech healthcare innovations. If there is no incentive to innovate, innovations will stop.
But the most important danger of socialized medicine is the same danger of our current approach. Both strategies imply that human choice doesn’t matter. In America, all of the pressure to lower costs is being placed on the hospitals and clinical care providers. Implicit in the government’s solution to the problem is the assumption that citizens have no control over their health and that America’s healthcare cost crisis is solely a result of capitalist excess, lack of healthcare access, and income inequality. Have those dynamics contributed to the current situation? Absolutely. There’s no question about it. But unless we treat human beings as moral agents, which they are, who have the power to shape their own destinies, our healthcare solutions will be tailored to only half of the problem. The body positivity movement attempts to say that all body shapes, including morbid obesity, are equally good. These people want to nullify human moral agency.
If an alcoholic gets a liver transplant, starts drinking again and is admitted to the hospital, which leads to thousands of dollars in costs, who is it to blame? Is it the physicians? Is it the hospital? Or is it the alcoholic? If a man smoked for forty years and develops lung cancer but can’t afford treatments, who is to blame? If a high-school dropout becomes morbidly obese and develops type II diabetes but can’t afford insulin and other necessary medications, who is to blame? If a young woman continues to practice unprotected sex with multiple partners and continues to get pregnant, but can’t afford the hospital bills associated with pregnancy, who is to blame?