Treatise on Health Care Reform: Part 1 of 3

I can't help it. I need to sound off on "health care reform" since the whole argument is driving me crazy. It seems like you can't watch the news, pick up a newspaper, listen to the radio, or read anything on the Internet without hearing about how we need to reform the healthcare system.

Well, I have a few thoughts on the subject, so here's one physician's current view on the debate. Actually, it is more than a few thoughts; this will probably rival the stimulus package bill in length, so I plan to present it in four parts: 1) Controlling Costs & the Concept of Employer-Funded Health Insurance, 2) Rights vs. Expenses, 3) Pharmaceuticals and Equipment. The fourth (much shorter) installment will succinctly outline what direction I think reform should take for the best good of all concerned; I plan to call this last one my "Proposal For Health Care Reform 2009." Lest you think I am suffering from 'delusions of grandeur,' let me say up front that I don't think for one minute that my opinion counts one whit in this debate. Still, it makes me feel better to put it out there, so here goes:

Controlling Costs & the Concept of Employer-Funded Health Insurance
One one hand, some politicians today think we should let the government finance the system entirely, turning it into something akin to the public school system, available to all at no direct cost. Increased governmental control will reign in costs (somehow). On the other hand, some think that the insurance industry just needs to be deregulated and allowed to sell plans across state lines. Fostering increased competition between those who pay for health care will reign in costs (somehow). And, of course there is every conceivable variety of opinion in between.

What nobody seems to want to talk about in the whole debate, is why medical services cost so much in the first place. Why is it that the cost of evaluations, treatments, supplies and equipment are so quickly outstripping society's ability to pay for them?

During my short career as a physician, I've seen a remarkable transformation occur. We have always had people who lacked health insurance entirely and were burdened with heavy bills when they got sick, but when I started practice as a resident in 2001, most people with health insurance rarely thought about the costs of health care at all. They had low deductibles, low or no copayments, and their employers usually picked up the tab for the insurance premiums, entirely. There were few, if any, restrictions on which physicians they could choose or which treatments they could have.

Now, many employers have limited how much of the premium they will pay, passing the rest on to the employee in an effort to have some control over the cost of these benefits. Yearly deductibles are increasing, and copayments for drugs, a relatively new concept, have risen from around $3 to $60 or more monthly for many meds. Additionally, insurance companies are increasingly involved in the doctor-patient relationship; the question for many patients has changed from "which treament is best?" to "which treatment is covered?" And, more recently, I have noticed an increasing number of patients with average incomes who can't begin to afford their medications, even with their insurance paying its portion.

Why? This is what nobody seems to be asking right now. While they squabble back and forth about how we can possibly pay for the "skyrocketing costs of healthcare" things, nobody wonders how the heck we got here in the first place. Perhaps part of the solution lies in identifying and correcting the underlying cause of the cost increase.

Let's review a short course in American Healthcare History, from a funding perspective. Health insurance as we know it didn't exist until around 1930; prior to that people were on their own to pay, in cash or in kind, for medical services. Those who couldn't pay simply did without, unless they could find a charitable physician or hospital, or some other generous group to pay for medical services for them. Many of these "uninsured" patients died of potentially curable conditions, simply because they couldn't afford treatment; this was not considered unusual or cruel, or in any way unfair. It was, simply, a fact of life.

Early insurance "cooperatives" were set up by large employers as a way to provide low or no-cost medical services for their employees, usually for the treatment of on-the-job injuries or illnesses. These groups evolved over the years into large conglomerates we know today as Blue Cross, CIGNA, and the like. As other, smaller players entered this market, they began to stratify patients into various risk categories, using an underwriting process like that employed in the life insurance business; patients likely to cost the company more were charged higher premiums, or were denied insurance altogether.

The next major evolution in healthcare funding was the HMO; these organizations were different in that, rather than trying to control costs simply through risk stratification, they began to focus on the supply side of the cost equation. They negotiated with hospitals, physicians, and other suppliers of healthcare using this basic bargaining phrase: "we have a ready supply of insured patients for you, if you agree to the conditions of our contract." The original HMO concept was that cost management through time-tested business principles, combined with an emphasis on prevention, could produce lower premiums for patients and higher profits for insurers. To an extent, the HMO concept works as a business model, although much of the envisioned cost savings gets swallowed up by the vast 'middle management' required to administer such plans effectively. Initially, these groups only attempted to control how much they would pay for each service recommended by physicians, not which services could be offered; the doctor-patient relationship was considered independent and sacred.

More recently, though, as costs have continued to spiral upward and profits have become more and more difficult for insurers to realize, even this boundary has been crossed and, in many cases, obliterated. Many physicians in HMO arrangements feel like simple puppets of the organization; every decision they make with respect to their patients is influenced by the mandates of the insurance organization. The historical doctor-patient relationship as we know it has, for many, ceased to exist, supplanted by the doctor-patient-payer relationship.

Another important historical element is the introduction of Medicare in 1965. Patterned after Social Security, this fund basically takes money collected from working Americans in the form of a payroll tax to pay for health care costs for retired people. This fund was a godsend not only for many elderly people, but for the medical industry in general, which, along with the rest of the world, had undergone a technological explosion that had greatly expanded what medical science could offer patients. Now, able to offer lifesaving and life-prolonging treatments previously unavailable, and with a virtually unlimited federal fund from which to draw for payment, physicians and hospitals across the country became wealthy beyond their wildest imaginations. Life expectancy for the elderly increased accordingly, and this placed an additional demand on the fund. In time, Medicare learned and began to apply HMO principles like the rest of the insurance community, and introduced strict limits on covered services in an attempt to control spiraling costs. Today, Medicare is not appreciably different from any other insurer in most respects.

Around the same time Medicare was introduced, the government instated certain tax incentives for businesses supplying health coverage for their employees; special laws were introduced governing "group health insurance," which gave special protections to individuals covered by group plans. These special protections took away many of the risk stratification strategies insurance companies used to determine who they would and would not cover. For example, insurers were prohibited in many cases from denying coverage for preexisting conditions. These same protections were not afforded people who weren't covered under group policies, and the difficulty those with health problems have in obtaining "individual insurance" persists even today; this disparity is one thing that some politicians are targeting as part of the reform being considered this year.

With that historical context, consider the original question. Why does healthcare cost so much in America, particularly compared with what it used to? For sure, there is no single, all-inclusive answer to this question. I believe, though, that most of the reason has to do with the way insurance has removed costs out of the consumers' eyes. For too long, patients knew nothing of what their medical services were costing them. Not only were they not paying the bills, they weren't even paying the insurance premiums.

Without incentive or motivation for patients to shop around, the providers of medical services have for years had basically no free-market control over rising prices, and they have acted accordingly in the pricing of their services. Rather than set their prices based on competition and what the market would tolerate, providers simply set their prices "higher than the highest payer's allowed cost," leaving all cost control in the hands of payers alone, who don't actually consume the 'goods.' Of course, competition among payers for patients then drives costs up, instead of down, like competition among providers would do. Not experiencing the costs themselves, patients as a whole have gotten in the habit of demanding nothing but the best, latest, greatest, most convenient, and, of course, most expensive care; this behavior is a natural by-product of the system we created. Not surprisingly, this handcuffing of free market principles in the healthcare market has led to the price explosions we continue to see. We have, unwittingly, created a system that is a perfect recipe for price inflation.

Of course, the lucrative nature of this service sector as a whole has encouraged more and more research, innovation, and development of new technologies for diagnosis and treatment, each more expensive than the one before. Of course, once a new modality for treatment or diagnosis is available, it becomes part of the "standard of care," and insurers have to cover it; premiums, then, rise accordingly as the insurers' cost burden increases.

When you think about it, the surprising thing is not that this has happened. The surprise is that the problem has taken so long to reach critical mass, which I believe it has. I see it every day in my practice, where the 'standard of care' comes head to head with its associated costs, which more and more patients simply can't afford, even if they have insurance.

So, what to do, then? Well, I'll offer my opinion on that in part 4, straight up. But before we can meaningfully reform the health care system for the long term, I think we need to decide one thing as a country: should health care services be available to Americans as service market items, like catering, carpet shampooing, or window-washing? Or, should they be purchased by the public collectively, through taxation, and provided to the people as a "right," of citizenship like we have decided primary education should be? In my opinion, you can't have it both ways and also have a system that will work for the long term, and that is what Americans have come to expect.

Two important legacies have been created with Medicare and the employer-funded health insurance concept, which are important to recognize. The first of these legacies is government involvement in health care. As with any program supplied by federal funding, Medicare has federal strings attached; the introduction of Medicare and its sister program, Medicaid, introduced government regulation of medical services. Most insurers now piggyback their own regulations and reimbursement rules on to those of Medicare so that, in a very real sense, the government controls funding for the entire healthcare industry. In effect, the doctor-patient-payer relationship has now further evolved into the doctor-patient-payer-government relationship, even for those who aren't covered by "governement insurance." Too often, people and their various medical problems are treated as just another football in the great political game. The introduction of politics into the mix has further complicated the delivery of health care in America.

The second legacy is that patients across America have come to view access to health care services as a public "right," like access to education has become, rather than as an individual "expense," like food or housing. While not specifically granted either by the Constitution or by any existing act of a governing body, this alleged right has, nonetheless, become very real in the minds of many Americans. This dichotomy will be explored more fully in part 2; stay tuned.