Saving money on health care

As I note here from time to time, health care -- which for various reasons I prefer to call medical services -- costs a helluva lot of money. Enough to make you sick. Health care spending grew from about 7% of the economy in 1970 to almost 18% today, about $11,600 per person. That’s more than any other country. In fact it’s about twice the average of the wealthy countries. But we get less for it. We don’t live as long, and by most indicators we aren’t as healthy, as people in those other countries that spend far less on health care. 

 

There are a few reasons for this that I've talked about before and I'll get to again soon, but for now I'll just talk about the ideas people have for addressing this problem, which seem to focus a lot on reducing use of "wasteful, "unnecessary," or "low value" services. That's not crazy. Americans do get a lot of medical interventions that aren't worth it, or are actually useless, or do more harm than good. One reason doctors keep doing these is because it's what they've always done and it's hard to teach and old dog new tricks. Also worth noting is that doctors do them because they get paid for it; and that patients sometimes demand it. One way to overcome this problem seems intuitively obvious: insurers can just not pay for it.

Unfortunately, it's not so easy. See the recent debacle of United HealthCare announcing that it will no longer pay for non-emergency visits to the Emergency Department. (United is one of the largest commercial insurers in the U.S., but they do a lot of Medicaid and Medicare Advantage business, so there are tax dollars at stake as well as private insurance premiums.) They had to at least delay the policy after a firestorm of criticism.

Here's the setup. ED visits generate huge bills, maybe $5,000 or more just for showing up, regardless of what the problem turns out to be or the actual services provided, which are just billed on top of that. United figured that if they could get people to go to urgent care or wait till their doctor's office opened in the morning, they'd save money and be able to increase their profits and lower their prices to attract more business. There are two reasons why this doesn't work, one of them fairly obvious and the  publicly acknowledged cause of the backlash; the second less obvious and less talked about.

As my colleague Megan Ranney notes in the linked article, the people who hie themselves to the ED don't know if they have an emergency until they get there and the experts tell them. If people are afraid their insurance claim will be denied and the hospital will turn around and send them a bill for thousands of dollars, they'll decide that chest pain is just heartburn after all and maybe end up dead. Many great minds have thought long and hard about what sorts of messages or information to give to lay people about when they should and should not go to the ED and nobody has figured out how to do this without endangering them. We just aren't qualified to make the judgment safely and reliably.

But there's another reason why this won't work. It's asking the wrong question and trying to solve the wrong problem. The problem is not that it costs more to get service in the ED than at an urgent care clinic or a primary care office. In fact it doesn't, or at least not very much more. The diagnostic exams and tests, and whatever prescriptions they write or referrals they make cost about the same. Those are called the marginal costs of providing services. The problem is that it costs a boatload of money to keep the ED open. It has to be ready at any moment to take care of people with gunshot wounds, horrific injuries from motor vehicle crashes, perforated intestines, Ebola virus, actual strokes and heart attacks  . . .  . That means keeping a staff of highly trained personnel and a lot of fancy equipment on standby all the time. And the way they pay for that is by applying a big fat fixed fee to every visit.

Suppose United's plan worked, and their customers started making half as many ED visits. Presumably United's competition would follow suit. They'd have to or they'd lose business to United, which can now charge lower premiums. To keep the doors open, the hospitals would have to jack up the fixed fee from $5,000 to $10,000, and United would have to pay it whenever there was what they recognized as a real  emergency. They wouldn't save a penny. But apparently I know more about this than their executives. There's probably a better way to do this, but United's brilliant idea isn't it.