A National Dilemma: Three Possibilities to Fix Healthcare

June 5, 2013

Here's a look at the pros and cons of three possibilities to fix the healthcare cost dilemma in the United States.

Healthcare costs are at the forefront of many current economic discussions - and for a good reason. United States per capita healthcare spending is substantially higher than most other industrialized nations, has been increasing at a steady rate, and makes up the single largest category of our nation’s gross domestic product. As our nation faces an increasing financial deficit with healthcare expenses being the largest budget item, it becomes a sizeable target.

This has created a lot of debate in our country, much of which headlined throughout our presidential election and which continues to receive significant national media coverage. People want to know how to reduce healthcare costs. As with most economic markets, reductions in spending can be accomplished through different methods. The first two methods I will cover include a market where the consumer makes value-based purchase decisions, demanding certain value for money spent, and thus decreases spending when value is not perceived; and second, a market where a governing body determines what services will be made available, limiting the scope of what consumers may consume. Both of these methods can be considered as a form of rationing, a term that has received a lot of negative connotation, but in reality is a basic economic principle. The third method considered here is a situation where the need (or demand) for services is decreased.

Models of healthcare rationing by governing bodies are currently being used around the world. A common method involves government committees making decisions on what benefits will be allowed for beneficiaries. For example, an expensive hip replacement may be covered for a person in their 50s with a good life expectancy, but not for a 90-year-old with other complications. By rationing which services will be covered by insurance, large sums of money can be saved. This reduces the amount of expensive procedures allowed for the population where the procedure or service is determined (by the committee) to have the least overall value. If individuals still want the procedure or service, they can find a physician and pay for it themselves. This method of rationing or managing services that are "covered" has proven effective in reducing overall healthcare spending in many countries. This method, however, also draws criticisms that a governing body is making the decisions on what services will and will not be covered.

Another effective type of rationing is made by the consumers themselves. We see this principle applied every day as people decide how to spend their money. Transportation is a necessity for most people, but some will purchase functional used cars while others will spend a lot on a new, luxury vehicle. People are rationing the amount they spend based on perceived value and availability of funds. We see this model in our current healthcare system for elective procedures that are not covered by insurance - a market that continues to thrive and is very competitive. Some believe that if we allow the consumer to be more financially involved in healthcare decisions, providers will focus more on the value of services provided because the patient (and likely employers paying for medical benefits) will become much more sensitive to what is received for the money being spent. The patient in this model is engaged in spending money for services based on the value received, considering different options that are available to them.

The third concept suggested involves reducing the need for services, thereby reducing spending. This approach involves finding ways to keep people healthier so they do not require as many services or procedures. Many of today’s managed care solutions are attempting to find results with a similar approach. For example, obesity is a condition which has been proven to have several negative health effects such as diabetes, heart disease, stroke, high blood pressure, and osteoarthritis. If obesity rates can be decreased, expenses related to diabetes, heart conditions, and other costly chronic conditions can likely be reduced. By focusing on better health and preventative services, we reduce the need for subsequent expensive care. Some believe a greater focus on preventive services and coordination of care is our best chance for reducing healthcare expenses.

Keep in mind, however, that while we try to figure out our healthcare spending dilemma, there are different participants in our system which have their own interests and financial concerns. If the amount of money spent decreases, someone will be financially impacted.

For example, consider the following situations:

• Hospitals make money if patients are in their beds, in their surgery rooms, or getting diagnostic tests such as MRIs. Reducing the consumption or need for hospital services presents a financial challenge for these institutions.

• Insurance companies make a substantial amount of money "managing" healthcare expenditures. There is a level of control that might be lost if patients themselves start driving healthcare decisions in a transparent market where they are spending more of their own money and making their own decisions. Insurance companies are limited to using 15 percent of premium dollars for administrative purposes. Thus in a simplistic view, lower healthcare costs and lower premiums result in less money available for administration and profit.

• Pharmaceutical companies do not prosper financially when patients choose less expensive generic medications or live healthier, requiring fewer medications to control or "fix" their conditions.

Our nation finds itself in a difficult situation with a mix of governmental policy involvement, a current payment system that masks the real cost of healthcare to the consumer, and a culture where many feel they are entitled to every medical luxury. At the same time, we have millions without access to essential medical services and, in many areas, a culture which fosters unhealthy habits.

Do any of the following possibilities have the answer, is it found in a combination of them, or does it lie in something new altogether?

•Get the government more involved with rationing certain services and strongly promoting coverage to more people

• Increase taxes to pay for our current system

• Create a market that is driven by the patient or consumer of services, with cost transparency, higher accountability, and little government involvement.

• Emphasize healthier living

The one thing that has led to great success in this country for centuries has been enabling individuals to be creative, hopeful, accountable, compassionate, and to exercise their freedom. As we wade through these seemingly murky waters to fix our healthcare dilemma, our country will once again need to rely on these basic principles of accountability and compassion to consider new ideas and models for our nation’s healthcare.

Dixon Davis, MBA, MHSA, is the vice president of practice management for AAPC. Over the last 15 years, Dixon has held senior leadership positions in healthcare administration in a variety of settings including independent practices, integrated health systems, and independent physician associations (IPA). E-mail him here.