Improving Health Care In The US: Can We Control The Costs?

In my most recent entry about the US health care system mess I focused on ways to improve access to high quality health care.  I outlined a plan to achieve virtually universal health care coverage without spending more money.  Unfortunately, we cannot realistically hope to improve access without at the same time, reining in the extraordinarily high health care costs, estimated at more than $7000 per  year for every man, woman, and child in the U.S.  We spend more than twice as much per capita as the next closest country.  And to add insult to injury, our health outcomes are the worst among the most highly economically developed nations.   The costs are continuing to rise at a dizzying pace, far faster than the rate of inflation.  If we continue at the same pace, it is estimated that in 30 years our health care expenditures will eat up 30% of our gross domestic product.   Can we tame this tiger?

Where do we start?

I actually instituted a number of important cost cutting measures as part of my plan to improve access to high quality health care.  First, just getting people to health care in a timely fashion will save an enormous amount of money but the cost savings will not be realized for a number of years.  For example, if we can make more timely diagnoses of diabetes mellitus (studies show that the average time from onset of diabetes until diagnosis is about 9 years) and get those people into chronic disease management programs, we will dramatically decrease the risks for diabetes complications, which currently eat up the lions’ share of the money spent on diabetes in the U.S.   Studies by the Kaiser Family Foundation have shown very nicely that development of chronic disease management programs by insurers saves lots of money because patients in these programs less often develop the costly complications of the disease, be it diabetes, heart disease, cancer, or whatever.

Primary preventive care, part of all good health coverage plans, will also save money in the long run.  For example, making sure all children are up-to-date on their immunizations, making sure people have appropriate preventive health screenings such as mammograms, colon and prostate cancer screenings will save bundles of cash in the long run.

Using Medicare as a template for cutting costs

First, I need to tell you a bit about Medicare.  This gigantic government program was approved by the U.S. Congress in 1965 as a way to assure excellent health care for U.S. seniors. The program is financed by a payroll tax as well as funds from general revenue.   Medicare costs have risen steadily for many years along with medical costs in general.  Assuming that Medicare costs keep going up and up, the Congressional Budget Office has estimated that the program will be bankrupt in the near future unless costs are controlled and/or some way of increasing revenue can be found.

There are 4 parts to Medicare, A-D: Part A covers hospitalization costs with 80% covered by Medicare and 20% by the individual.  At age 65 all people who have participated in the payroll tax are automatically enrolled in Part A at no cost to the individual.  Part B is for outpatient medical care charges and is voluntary with charges ranging from about $90/month to about $250/month depending on the individual’s income.  As with Part A, the coverage is 80/20.

Part C is for Medicare Advantage plans which are Medicare HMOs which I will discuss below.   Part D is the recently enacted prescription drug plan.  Like Part B, this part of Medicare is voluntary and costs about $35/month but I’ve heard that charges are to be increased about 30-40% by most of the insurers participating in the plan.   Part D is rather complicated in that there is a “doughnut hole,” a point at which coverage for drug costs stop until the individual has spent about $1500 out of pocket before the plan picks up costs again.  All in all I think Part D has been a good deal for most people covered by Medicare but the costs have been huge, contributing to the uncertainties about Medicare’s fiscal solvency.

Finally, in some geographic locations, people can enroll in Part C, a Medicare HMO which covers Parts A, B, and D.  Medicare HMOs are different than traditional Medicare in that there are some restrictions on which physicians can be seen and where services must be obtained.  The idea in allowing these HMOs was that costs would be lower and the quality of care as good or better than with traditional Medicare coverage.

In general, regardless of whether a person is enrolled in traditional Medicare or an HMO, I believe that Medicare has been a very good thing for U.S. seniors; guaranteed health care coverage regardless of current health status or pre-existing health conditions.  The 2 biggest problems with Medicare at present are access and costs- where have I heard that before?

As discussed in an earlier entry just having Medicare does not guarantee that an individual can get a timely appointment with the doctor of his choice or sometimes any doctor.  In terms of costs, here I mean costs to the individual; at present, the annual cost to an individual for Parts A, B, and D is about $1500 per year.  That sounds reasonable but remember that the individual had likely been paying into Medicare for years and years.  In addition, particularly for Part D, there may be large co-pays depending on the specific drugs prescribed; my mother pays about $150 “extra” each month for her Part D co-pay.

Also, remember that payment for Parts A and B are structured on an 80/20 basis; one serious hospitalization with a bill for $200,000 (not so unusual) means the individual owes the hospital and/or clinic and doctors $40,000.  This is why many people on Medicare purchase supplemental insurance policies to cover the part of the hospital, physician,  and clinic bills that Medicare does not cover (Medicare now calls such plans “Medigap Policies”).  These supplemental plans range in price from about $2000-$4000 per year, bringing the total annual cost of Medicare to as much as $5500; that comes to $11,000 for a married couple,  a formidable sum for people on modest fixed incomes.

For some people who continue to work after age 65 or for those whose employment retirement plans cover health care costs, Parts  B and D might not be needed (for example, when I retired from my university job and turned age 65, I was automatically enrolled in Medicare Part A, I signed up for Part B, and the University employee retirement insurance plan picked up the costs for Part D and also served as a supplemental plan for costs not covered by Parts A and B (I pay about $100 per month for this coverage, which is in addition to my costs for Part B).

So, now you know about as much as anyone needs to know about Medicare.  You can learn much more by checking out the Medicare website.  Later, I’ll come back to what I think we need to do to improve Medicare, but for now I want to focus on how to use Medicare to decrease health care costs in general.

Getting down to the specifics

I believe we should start by making big changes in the way Medicare pays for things.  Usually, the way Medicare goes, so goes the private insurance industry.  I propose that we start by mandating that Medicare negotiate prices for all of the services it covers.  I’d start with Medicare Part D, the prescription drug program.  It is impossible for a sane person to understand why the U.S. Congress made it illegal for Medicare to negotiate drug prices.  Of course, the result was a very high cost program.  Medicare must be able to negotiate drug prices and also to set up a drug “tier” system where certain preferred drugs cost less than other drugs, just like private insurers do

Medicare must also negotiate prices for laboratory tests, X-rays and other procedures, even things like hospice care.  Just to give you a sense of how crazy the system is, I will tell you about a patient I know who is living at a private nursing home for patients with Alzheimer’s disease who qualified for hospice care within the facility (covered by Medicare) allowing him to remain at the facility until death rather than having to be discharged home to be cared for by relatives and friends or to be transferred to a true hospice care facility.  At present the hospice care services consist of a 1 hour visit once a week by a nurse with Medicare footing the bill of about $6000 per month. It’s a true story.  What about laboratory tests and medical equipment for home use?  If a blood test really costs $6.00 to run including depreciation of equipment, labor, and other overhead costs, why should Medicare pay $200.00?  Hey, I’d be happy to pay  $8 or $10 so the lab can make a little profit on the test.  Why should Medicare pay a medical equipment company $30 per month for 24 months to rent a wheel chair for a patient when buying a new chair only costs $300?  I could go on and on and on but I think you get the point.  Medicare can save a bundle by making sure it is charged fairly for whatever services it covers.

The role of the primary care doctor

I believe we should go back to a variation of the old managed-care idea of having a “gatekeeper,” a person who determines when a patient could get this test of that test or see this or that specialist.  The problem with the original managed-care approach was that the gatekeepers tended to be minimally trained clerks who made important health care decisions based on sets of written guidelines rather than letting the  doctors and nurses make those decisions.  Primary care physicians and probably also primary care nurses should be given the authority to decide what laboratory tests and procedures their patients need and which specialists the patients need to see.  Of course, a patient can see a specialist without having to go through the primary care “gatekeeper” but the patient shouldn’t expect Medicare to pay for it.  Maybe people will want to purchase supplemental insurance that allows them to see specialists anytime they wish (e.g., a Medigap policy)?  That’s ok with me other than if specialists are in such short supply, that they might favor patients who are paying out of pocket or who have insurance coverage that pays more than does Medicare?  Of course, the critical thing here is for Medicare to work out its payment schedules carefully and not pay less than a fair price for the service whatever it might be.

One serious flaw with my scheme to go back to a gatekeeper system is one I discussed earlier, the fact that we have many fewer primary care doctors  than are needed right now, let alone if we set up a gatekeeper system.  What may help some is that if we institute a gatekeeper system, we may find many specialists deciding to do some primary care as part of their practices; I suspect pay for primary care doctors will increase while that for specialists decreases.  It’s not that physicians are struggling to survive; right now, a general internist averages about $125,000 per year but a dermatologist just out of training can make between $400,000-$500,000 per year; no wonder so many of the smartest medical students are going into dermatology.  The U.S. Congress has already begun efforts to increase Medicare compensation for primary care doctors.  Regardless, we need to move to a system where primary care is king of the heap, at least for medical services paid for through taxes.

Medicare charges for hospitalization

Along with figuring out how much Medicare should pay for each of the services it covers, the approach to paying for inpatient services should be revamped.  Instead of Medicare paying  for each hospital day and all of the various tests and procedures that get done to a patient, Medicare should pay a flat per diem for hospital days.  The rate should depend on the level of care; Medicare would pay more for a day in the intensive care unit to treat a heart attack than a day on the hospital ward to treat uncomplicated pneumonia.  In this way, the doctors can order as many tests as they like, but Medicare pays only the per diem.  If this plan is ever approved, I predict, you will find physicians ordering many fewer tests, omitting the ones they didn’t really need anyway.

Alternatively, there could be a per diem based on level of care and additional payment for tests and procedures based on negotiated prices, something we discussed above.  No matter exactly how we do it, we can save an enormous amount of money for Medicare.  But this isn’t just about Medicare; without a doubt, the changes we make in the Medicare program will quickly find their way into private insurance plans.

Should Medicare be used to subsidize graduate medical education?

When Medicare was enacted, the budget included funding to cover most of the costs of graduate medical education.  Medicare still pays most intern and resident salaries, although there have been efforts to decrease or to even eliminate the subsidies.  Giving hospitals money to cover house staff salaries might have made sense in 1965, but in my opinion, it’s throwing away taxpayer money in 2009; it’s a great deal for hospitals that employ interns and resident physicians at little or no cost and the attending physicians who supervise these doctors-in-training still get to bill Medicare for providing care.  In 2008, the average direct payment to each teaching hospital in the U.S. was about $17,000,000.  The total annual cost to Medicare for graduate medical education is several billion dollars.  I believe that money would be much better spent helping to increase the number of physicians in the U.S. by helping with medical school tuition which is now more than $20,000 per year even at state-supported medical schools.

What are the consequences of these changes beyond the cost savings?

Assuming that the Goldstein Health Care Plan is adopted (I’m not holding my breath) , it is very important that we anticipate and find ways to deal with the “fall out.”  Many hospitals will find their revenue streams slow to a trickle in some areas.  For example, hospitals that did high overhead but very high reimbursement procedures such as sophisticated cardiac surgeries (e.g., heart transplants, cardiac by-passes) may find that such procedures are no longer worth performing given the much lower payments by Medicare.  This will likely result in major organizational changes in many hospitals and clinics but in the long run the adjustments will end up strengthening the U.S. health care system.  I predict that many hospitals will pick areas that they choose to specialize in such as rehabilitation medicine, cancer, diabetes, mental illness, while letting other hospitals focus on orthopedics, burn treatment, etc.  The U.S. military has been using this approach for many years.  The idea that almost every hospital should be able to do provide most any service or carry out most any procedure from the simplest to the most complex is unrealistic and fiscally unsustainable.

It will be important that those in charge of overhauling the health care system work closely with hospitals and clinics to help them make what will no doubt prove to be a difficult transition.  It will be very important to phase in the changes.  I am convinced that the end result will be a much improved and sustainable health care system.  For those who have read my proposal for health care reform and cannot see the “light at the end of the tunnel,” please remember that the full proposal consists of many small steps and a few giant ones.  If we take one step at a time, we can achieve in the end what all Americans need, the best possible health care for all.

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