Monday, August 27, 2007

Health Care's Tougher Problem--Solving the Access Problem Isn't Enough If We Don't Deal With Costs

Today we honored to have Brian Klepper post for the first time. Brian's posts have been appearing on some of the leading health care blogs and I finally pestered him long enough that he agreed to begin doing some here.

Today, he reminds us that solving our health care access problem is far from enough if we don't get costs under control:

Health Care's Tougher Problem

by Brian Klepper

Health care reforms are finally in vogue again, in state legislatures, Congress, among presidential candidates and in the movies. Most proposals focus on universal coverage of basic or comprehensive health benefits. This is practical as well as noble. As the numbers of uninsured and underinsured patients continue to explode, the worry is that doctors and hospitals will be financially overwhelmed by demands for unpaid services. Funding every patient for at least basic services would make care more available. But it would also strengthen the stability of the professionals and institutions that provide care.

Even so, universal coverage alone will add significant cost to an already overburdened system – about $300 billion for comprehensive benefits, according to America's Health Insurance Plans. Health care’s out-of-control cost growth – almost 5 times as fast as the rest of the economy between 2000 and 2006 – is pricing individual, corporate and governmental purchasers out of coverage. So any effort that seeks a stable and sustainable health system must attend to cost as well as access.

It is impossible to know exactly how much waste there is in America’s vast, incredibly complex health system. But many experts agree that as much as half of care and cost – more than a trillion dollars a year at this point – is inappropriate, preventable, or the result of errors or administrative inefficiencies in every part of the system. There are many drivers: inadequate management tools, enormous workloads, greed, defensive medicine and perverse financial incentives.

Two structural flaws promote excess in health care. First is fee-for-service (FFS), the most common approach to reimbursement, which rewards more care rather than the right care. Under FFS, more procedures and products produce more revenue, and the opposite is true as well. Doing less, even while getting the same results, produces less revenue, so health care organizations have little reason to invest in efficiency.

The second flaw is that objective pricing and performance information is generally unavailable. This makes it hard for managers to identify problems and opportunities so they can be addressed, and it results in poor or even dangerous performance generally going unnoticed.

Worse, the industry’s awareness that behaviors are difficult to detect has created an opportunistic culture, with aggressive tactics for revenue generation that add cost without adding value. Because information is mostly unavailable on cost, on who doesn’t do a good job and on what doesn’t work, the market cannot distinguish and favor appropriateness and excellence.

Weaning the health care industry from unnecessary care and cost will be much harder, technically and culturally, than mandating universal coverage, and it must be undertaken carefully, with a long-term time line, national leadership and resolve. The revenues associated with waste have become a significant portion of most health care organizations’ financial baselines. Simply slashing payments could be disastrous to important organizations with thin margins, like hospitals and primary care groups.

We can disrupt the primary drivers of the health care crisis. Knowing the relative performance of all professionals and organizations will help health care work like other markets. And changing the reimbursement incentives to reward the right care would drive waste from the system.

A lot is at stake here. Skyrocketing costs are rapidly eroding enrollment in health coverage. We could reach a tipping point in which, as resources dry up while the demand for care increases, health care – the nation’s largest business sector, one-seventh of the economy and one-ninth of our jobs – is disrupted and the turmoil cascades to other parts of the economy.

The industry has taken its first tentative steps toward two important cost reformstransparency and performance-based reimbursement – but the intensity and potential scale of the crisis warrants more focused, immediate national attention and resources. In any case, we shouldn’t rely on the industry to drive or even support these changes. Few groups willingly lose financial ground. Health care’s lobbies will likely present a unified front against reforms that threaten financial performance.

So real change, if it comes, must be shepherded by the leaders of non-healthcare business, the one group with more heft and political influence than the health care industry. A small group of Fortune CEOs, willing to meet and provide visible leadership, could orchestrate the initiation of a much broader effort. They could recruit all business to impose performance disciplines on the health care sector, to resolve the threat to our national economic security, and to make better care more available and more affordable to everyone in America.

Brian Klepper is a health care analyst based in Atlantic Beach, Florida.
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