Questions but few Answers

I worked in Health Care Administration for 11 years. I was a claims examiner, then auditor, compliance specialist, and Manager/Asst. Director. I helped administer Worker's Compensation, traditional insurance, Medicaid, and both long and short-term disability claims. In those 11 years I saw the advent of Pre-Certification, HMO's, PPO's, PHO's, and self-funded programs. All were intended to restrain the rising cost of health care. All were 'private sector'/market-driven solutions. None worked. Not one - the closest any came were probably SSO (Second Surgical Opinion) and Pre-Cert requirements, both of which had demonstrable negative side-effects like discharging pregnant women within 24 hours, often too early.

I've also witnessed the impacts of Medicare. While Medicare has helped to prevent poverty among the elderly by absorbing the costs of health care (in part) for our older fellow Americans, it has not constrained costs as we'd be lead to believe should happen with the burden shared more broadly. In fact, health expenditures are rising fastest in the over 65 crowd. Of course, that is attributable to having many more seniors than in the past, but it is clear that the negotiated rates from Medicare cause most physicians to chafe terribly at what they see as depressed reimbursements.

There are several causes for increasing costs. I could site numerous articles - if people ask, I'll go find them, but I hope that on this subject people can accept I am a comparative expert.

Following my time working for two of the largest insurers, I also spent time doing claim arbitration work for friends and family for another couple of years. It wasn’t full time, but it also taught me a few things about how insurance companies (in general), react to non-standard types of care.

The bottom line it seems is that we have escalating costs for three specific reasons:

1. We have an aging population which is increasingly taking advantage of more effective end-of-life and acute geriatric care. One estimate says that 50% of the health care costs are for those over 65.

2. A few specific conditions account for a huge amount of expense. That same study said that 7 specific conditions account for 44% of all health expenditures.

3. As costs increase, more people fall out of the system. As more people fall out of the system, those who remain in insurance programs directly have to pay a higher fee for their services to help offset lost revenues to providers from unreimbursed care.

4. As people became less able to afford care, they skip care. They wait until they are truly in-trouble, not just sick, and then they go to Emergency Rooms for care. ER’s are the least cost effective delivery method imaginable. First, it’s a hospital, so it has high overhead. Second, ER’s are heavily staffed for emergencies, and so there is that simple burden, but probably MOST impactful, ER’s feel compelled by law, risk of litigation, etc.. to run tests on many patients far more heavily than would have been done in a clinical setting with a more healthy patient who’s problem was caught much earlier.

There are also some myths about what is increasing the cost of care, those specifically are

1. From the right-wing (and a little the AMA), we are told malpractice causes enormous cost increases. However, other than a few specialties (obstetrics and surgical), malpractice isn’t much higher than it was 20 to 30 years ago. Even including those factors, Malpractice (again per several studies) only accounts for one-half of one percent of the inflation level per year. Malpractice DID spike upward in the early 2000’s, but that was due to relative under-charging in the preceding 5 years AND losses in the stock market unrelated to the cost of health care. Malpractices insurers sought to recover losses by charging doctors more – not because malpractice losses increased.

Further, the offered solution, tort reform, offers to limit awards as a measure to reduce ‘frivolous’ cases. However, if baseless cases were the problem, they’d not get large awards, meaning, frivolous cases don’t get millions in awards. Insurers are trying to get protection against truly large awards to people for truly egregious acts by doctors. That’s not trying to stop frivolity, it’s trying to stop having to pay large claims even as they collect large premiums. Regardless, malpractice simply isn’t that significant an expense to be driving, in any meaningful way, health care inflation.

2. From the left, we are told that the issue is the complex administrative bureaucracies and in general adversarial attitudes of insurance companies leading to the need to hire vast administrative staffs at hospitals and clinics. While this does certainly cause inflation, estimates are that it causes up to 15% of the inflation we see in the market, again the truth seems to be somewhat less than the hype. First, insurance companies, all of them but one that I ever dealt with to any extent, hire examiners and auditors (and managers) to process claims. They aren’t out to give away money, but they administer programs within the strictures of the law. They price the premiums to make a profit based on an assumed amount of health service activity. I never, not one time, EVER heard anyone suggest slowing/delaying/losing a claim as a course of action. I acted as the patient’s advocate when I was an auditor and appeal reviewer, and I was supported, without question, by company Counsel and management – every time, all the time.

Second, nearly all of the administrative burdens insurance companies placed on doctors and hospitals were put there to RESTRAIN costs – not to increase them. To do so would be self-defeating for insurance companies. It would be horrid business practice to require a doctor to increase costs 50% to comply with pre-certification or second surgical opinion (or referral) requirements that might save 20%. The bottom line is, HMO, Pre-Cert, SSO, etc.. DID have a retarding effect on inflation.

The greatest amount of inflation in medical costs came from 1960 to 1975 (at 2300%) when NO administrative controls were in place. The second greatest period (that of the past 10 years) has occurred as doctors (and hospitals) have left HMO’s/PPO’s in droves due to their belief that the relationships simply don’t pay ENOUGH. So, both the left AND the right have meme’s about what the problem is. Gutting malpractice claims will merely lead to people who truly suffered a loss, getting screwed by the system instead, and going to ‘single-payer’ alone, won’t control costs adequately either.

Both would help, one to an infinitesimal degree (malpractice reform), the other somewhat more, but NEITHER addresses the problem. One other meme’ to deal with, over-utilization – this is the one which claims the poor (or immigrants) etc.. go to ER’s frivolously. It is funny that the primary complaint of some seems to be that if the less advantaged or victimized in society merely didn’t complain about catastrophically bad treatment and they didn’t get sick, we’d be just ducky.


The truth of course is FAR from this. As I said, the fact is that 7 illnesses account for 44% of expenses. That’s NOT malpractice or frivolous trips to the ER – that’s elderly, overweight, diabetic people needing care. The poor have higher ER utilization, no question, than do the middle-class, but that’s because the middle-class have MUCH MUCH higher clinical utilization. The poor cannot afford co-pays at clinics – so they wait until they are desperately sick, and then go to an ER which they know cannot turn them away.

The truth is that had they gotten the basic clinical care, they’d doubtless have the same basic ER utilization as the middle-class, unless you think the poor simply LIKE to throw away money – because most of the time, ER’s still require the patient to pay something – and that something usually exceeds what an office co-pay would be.

As well, it (arguing everything will be fine if we just get the indigent to pay) fails to deal with one fundamental paradox - if we know we are paying $7000+ per capita, and we believe the rates of compensation for health care workers are fair and justified, then we aren't 'paying too much' - yet, we agree that something is fundamentally wrong.

So, what to do? First, a couple of points – pharmacology is the leading method of treatment of most diseases. We instituted Medicare Part D, to try to help seniors pay for medications. Seniors consume many more medications on average than younger people.

The net effect was we fed a highly inflationary system even MORE money. We didn’t try to control the cost side, and so costs overall went up. As well, drug companies spend $14 on advertising for drugs like Lovitra, Viagra, etc.. than they do on research. In fact, a LOT of the research in medicine in the United States, is done at publicly funded universities. Drug companies turn profits in other countries selling the exact same medicines they sell here, at a fraction of the cost. Finally, end of life, and near end of life care, consumes vast amounts of health care services and dollars. As a population bubble ages it will only increase demand and usage – and thus overall expenditures, even without the supply/demand cost pressures.

With this, I will make the following general observations/suggestions One point a conservative friend of mine made which I absolutely agree with, is get the true price of the care reflected to the patient. If an X-Ray of your spine costs $300 (factoring expense and normal retail profit numbers), then patient’s, all patients, should be charged $300, rather than charging me, and five other people $350, to pay for one person who didn’t/can’t pay. How that 6th person pays, he didn’t have an answer for.

When I suggested to him that this is the exact problem, that we have too few people sharing the overall burden, he agreed. Yet, how can this be done? How can we make it so that the 6th person can cover the cost of normal care sufficiently?

The cost of drugs must be negotiated. Any health care solution which doesn’t grasp this fundamental reality will fail. I don’t know whether suggesting a return to making drug advertising illegal is workable, but some more realistic split on advertising/research seems required. Perhaps drug utilization for sexual impotence needs the same market-based limitations as we have for chiropractic and podiatry. Perhaps such drugs should have scaling co-pays for a certain number above 10/month, but some sort of reasonableness in the pharmaceutical industry is needed.

These are the most profitable companies (as a percentage) in the world, supplying a demand item. We regulate public utilities for this very reason, people cannot be held hostage for heat or power, there is no sound reason not to consider health care, and including pharmaceuticals, a public utility, especially given that we subsidize their research dollars. As well, we simply must negotiate some sort of reasonable cost/profit ratio with pharma – it is done in many other countries, and clearly CAN be done here, it just isn’t – mostly due to the vast power of money of the pharmaceutical companies.

Finally, I do not believe that going to a national health care system will dramatically lower costs. It may not lower them substantially at all. We pay our doctors FAR FAR more than any other country, and on average, get rather less quality than many other countries (we are 29th in infant mortality, 37th in life expectancy - these are considered the bell-weather bench-marks of measuring delivery of care). We pay more than double the next closest nation in PER CAPITA health care costs. That’s not because of unreimbursed care, that measures total cost of delivery of all care divided by citizens. Our care is no more sophisticated or well done than many other nations unless you are VERY wealthy and can buy whatever kind of care you like.

The only culprits for that cost difference which varies from other peer-group nations are wages, costs of consumables, and malpractice expense (which we’ve already dealt with). So, in addition to drug costs, wage expense clearly is an issue – but it is highly, HIGHLY unlikely even a nationalized health-care system will lower wages. That would be disastrous for those workers, and not palatable at all to most people in the country. However, it WOULD, just like negotiating drug costs, tend to apply the brakes to wage inflation in the industry, so while it wouldn't reduce costs, it probably would help to restrain or even stop the run-away inflation in the industry. Equally, we are a horribly unhealthy nation. We are vastly overweight as compared to nearly any other country. This increases our health cost burden enormously. So many other diseases, diabetes, heart disease, cholesterol imbalances, arterial disease, etc.. are attributable to and exacerbated by excessive weight. We must change our entire approach to fast food, what kinds of food are delivered industrially (such as beef and other high fat foods), versus those which are costly here, but cheap elsewhere (grains, fruits, vegetables). We provide high-fat, quick foods because they are easy and fast, but they are an enormous burden on society in the long run.

Finally, while we have lower life-expectancy, we do tend to ship our elderly ill off to nursing homes and hospice centers. If we are not to be crippled by ever escalating total costs, some predict that without restraint our health care costs will exceed 20% of our GDP, meaning 1 in every 5 dollars in the country will go for health care – we must make some hard decisions about life prolonging care for the terminally ill. It’s not the biggest area for cost cutting, but it does consume a lot of money. I don’t have any answers, but I do think there are answers to be found.