Unmanageable healthcare in the making

The Hill (Washington, D.C.), June 9, 2009
News Blaze (Folsom, CA), June 12, 2009
American Conservative Daily, June 13, 2009

Candidate Barack Obama showed bold leadership on healthcare. He promised Americans $2,500 in annual healthcare savings and a path to universal coverage. He attacked his Democratic opponent for insisting on an individual mandate to purchase health insurance. He blasted his Republican opponent for seeking to tax employer-provided healthcare.

In office, President Obama has been curiously passive on designing healthcare reform. Although he armed himself with a health czar, Nancy-Ann DeParle, he has ceded the design of his remake of over 16 percent of the U.S. economy to congressional leaders. As a result, it’s a strong possibility that some form of then-candidate John McCain’s tax on health benefits will fund then-candidate Hillary Rodham Clinton’s individual mandate. The $2,500-a-year-savings will prove to be a mere accounting gimmick, a reduction in the rate of increase in future spending, rather than dollars that Americans can actually spend today.

Even more ominous, the main cost-control idea, other than government-imposed price controls, is a return to HMO-style managed care. They aren’t calling it this, of course. When mentioned, it’s referred to as “coordinated care” or even the welcoming “medical home.” There is sometimes discussion of capitation-reimbursing a practicing physician a fixed amount, per patient, rather than paying for work actually done. Every once in a while the virtue of Kaiser or the Veterans Administration arises.

Make no mistake, they are talking about a new version of the old-style staff-model HMOs, in which each person has a dollar amount attached and the primary care doctor has a financial stake in limiting the intensity of services used. In other words, the less expensive care patients receive, the more money physician groups or hospitals make or the government saves. The gatekeeper’s job is to keep patients away from the more expensive specialists by steering them to lower-priced alternatives.

Academics have long been attracted to a coordinated model. It fits nicely into models of control, spreadsheets, and high-powered statistical analysis. Americans, however, have been less keen on the idea and have chafed at its implementation. President Clinton’s plan failed in part when it became clear that Americans would be pushed into HMOs. When the corporate human resource departments bought into the idea and started pushing employees into restrictive managed care, Congress responded with the Patients’ Bill of Rights. Today, very few Americans choose to enroll in integrated HMOs.

It’s the patients who have a clearer view. Consider the divergent incentive structures. Under fee-for-service payment, patients in need of care are revenue centers for physicians and hospitals. Their business is desired and, as evidenced by roadside billboards and radio advertisements, institutions compete to serve patients. Under a capitated system, or one of global budgets such as exists in Canada, the same patients are cost-centers, drains on revenue at point of service. The problem with managing costs from the top down is that care gets rationed and less intensive; expensive services are substituted for the latest intervention; and people end up waiting for care.

It might appear odd then that Democratic Congress members would push right back to where we started. Yet they have no choice. If expensive healthcare coverage is to be expanded to millions of Americans who do not have it, the money must come from somewhere: new taxes, fewer services for those currently insured, less money per patient for physicians and hospitals, or some combination.

All the favorite and much-cited sources for economizing fall short. There are not enough excess administrative costs to get the job done. Healthcare information technology will actually cost money to implement. Preventive medicine and chronic disease management would, in all likelihood, increase spending over the next decade. Even the favorite smoking-cessation push will drive up total spending a decade and a half out; it merely trades less expensive care early in life for more expensive care later in life.

The revenue side is not yielding enough money. Even after taxing smokes, booze and sugary drinks, there’s a yawing gap between projected costs and expected revenues. The government can limit the tax deduction for charitable donations, thus hurting churches, and tax employer-sponsored healthcare benefits, which hurts those currently insured, and still not come up with the money to pay for its new programs. The only options left include cutting reimbursements to providers, hospitals and clinics, and reducing the volume and intensity of services used by the average insured patient.

Expect to see stories in the media about useless tests, unnecessary visits to specialists, and too much spending on end-of-life care. It will seem easy to assign experts to wring out this excess spending. But keep in mind that tests, specialist visits and end-of-life care are the result of a patient and a doctor trying to achieve the best possible outcome for a real person. The definition of an unnecessary test is a test for a stranger. Necessary care tends to be what you or your loved ones want or need.

Pipes is president & CEO of the San Francisco-based Pacific Research Institute, a group partially funded by healthcare industry groups. Her latest book is The Top Ten Myths of American Health Care: A Citizen’s Guide.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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