I’m ready to suggest that any article on healthcare start with a glossary. This is particularly true for articles about money. For example, what’s the difference between healthcare costs and the costs of healthcare? The distinction is important because one refers to the cost of an individual healthcare service, such as an appendectomy, and the other refers to the total amount spent by on all healthcare in a community.
Let’s start at the beginning. Say, you run a healthcare insurance company, like Medicare, Medicaid, or Blue Cross. You want to reduce your annual expenses. There are a limited number of strategies, but no magic answers.
- Limit the number of people insured by limiting eligibility. States do this a lot with Medicaid. Obviously, if you’re dependent on premiums, this is self-defeating, but it works for Medicaid and somewhat for Medicare.
- Cherry pick. Limit eligibility to healthy people who won’t demand much healthcare. This works in both directions. Patients wait to buy insurance until they think they might be sick. Hospitals try to adjust their payor mix so they have more high-paying insurance companies.
- Cost shift. Paying less thru insurance and passing more of the cost to the patient. Originally, co-pays and deductibles were intended to discourage use. That didn’t work, but the concept did serve to shift costs. Cost shifting is happening in Medicare even as we speak. Americans already pay a larger share of their healthcare costs than any other country, and that trend will continue.
- Improve the health of your insured population. Try to get folks to eat less, drink less, and exercise more. They will then use less healthcare, so you’ll have to pay for less healthcare as the insurer.
- Reduce coverage. We don’t pay for that. The NICE committee in England is the poster child. They decide what the NHS will/won’t pay for. A similar system is part of the Accountable Care Act in this country. Drugs are a big item here, particularly cancer chemotherapy drugs. This is the reason you see the US Preventive Task Force arguing against PSA tests, mammograms before age 50, PAP smears, etc.
- Prevention. Sounds good, but the numbers don’t show much, if any benefit. The most prevalent problems in US patients today are smoking, obesity, and alcohol. How do you prevent the consequences of those personal choices? One strategy that seems to work is tailoring premiums to personal habits. If you smoke or have a BMI over 25, your premiums will be higher. I don’t see Medicare doing that any time soon. Under this broad title, we must also group prevention of healthcare itself. Most of this effort has gone to preventing diagnostic tests and procedures, but we’re also seeing questions about back surgery and coronary artery stents for example.
- Screening. Any test has a certain number of abnormal results. Some but not all of these are significant. All the abnormal results lead to more tests that cost more money and don’t necessarily do any long term good (except for the providers who get paid for doing them). When I was a kid, the state health department had mobile vans in shopping centers to do chest X-rays for Tb. Not today. Let’s agree that mammograms are a good thing. But how often? And starting at what age? Or until what age? If you really want to screen for colon cancer, you must do a colonoscopy. As an insurer, are you going to pay for that for everyone, or is fecal occult blood good enough?
- Shift the care system to lower cost providers. That’s what the “medical home” is all about, having nurses, nurse practitioners or physician assistants do work that was formerly done by physicians. It can work if done well. Been to a bank lately? I haven’t. My bank (USAA) doesn’t even have a physical office, and I like it that way.
- Reduce your cost per unit of healthcare service. You do this by negotiation and price competition. CMS (Medicare) tried this for durable medical equipment (think wheelchairs), and it worked. It worked so well, in fact, that affected suppliers screamed to their congressman who screamed at CMS and they stopped. Reported savings were in the 30% range, and there is every indication that it would work for healthcare services also. Suppose Medicare sent out an RFP for total hip replacements and awarded contracts to low bidders every 50 miles along the East Coast to serve patients in those areas.
Like they say, it’s complicated. There are other considerations or issues that need to be addressed, like:
- Someone has developed a new super-duper way of doing mammograms. Early results suggest it finds smaller tumors, but it costs twice as much. Are you going to pay for it?
- A new screening scan of lungs in smokers spots their lung cancer sooner. Are you going to cover that?
- Here’s a patient who weighs 260 pounds and wants a total knee replacement. Will you pay for it?
More to come about money. Stay tuned.