The Right Medicine For Healthcare - Part III: Lower the Costs

The second needed step to reform healthcare is to directly assault certain aspects of the current system that cause excessively high costs. In particular, tort reform, medical record digitization, and realigned incentives are stepping stones that will help alter the healthcare landscape.

Tort reform is one of the most widely discussed and easily implemented solutions. The current legal system leaves doctors overly exposed to frivolous lawsuits and often gargantuan penalties. Many of these litigations go after doctors who made innocent mistakes or procedures where bad results were simply the result of probability. After all, medicine is innately subject to human error. While doctors should certainly be held accountable for gross negligence or irresponsibility, America’s overly litigious society has gone too far with malpractice suits. Lawyers looking for a quick settlement and some spare pocket change are aided by a compliant system in squeezing money out of generally well-meaning doctors.

This has indubitably led to an increase in defensive medicine and higher malpractice insurance costs. Defensive medicine – when doctors perform or require unnecessary procedures in order to protect themselves from litigation – is both expensive and potentially harmful to patients. Likewise, malpractice insurance is extremely burdensome to doctors. Together, these cause patients, both directly and indirectly, to have increased medical expenditures.

Tort reform is a relatively easy fix. According to The Washington Post, such reform would save anywhere from $100 to $200 billion. Litigation can be made more difficult, laws can be more narrowly defined to prevent abuse, and losers could be forced to pay opposing attorney fees. Penalties can also be applied to litigants who bring frivolous lawsuits. By restricting litigation to the truly deserving instances, doctors would be freer to practice safe and cost effective medicine (and even try high-risk procedures that might help some patients).

The second aspect to tackle is the digitization of records. Currently, according to CNN, the lack of digitized records costs the industry some $200 to $300 billion a year. While converting to a completely digital system will have implementation costs, in the long-run it is a clear cut necessity. Currently, the time spent by doctors and support staff in reviewing and transmitting paper documents is completely inefficient.

Not only would digitization impact overhead costs but it would have at least two direct health related impacts. First, it would enable a patient’s doctor to more closely monitor the patient’s health. It would facilitate communication between different doctors and potentially prevent life-threatening mistakes, such as conflicting medications. With digitization a doctor would immediately have a patient’s full medical history, thereby allowing better and more accurate diagnoses. This would not only directly improve the quality of healthcare but would lessen the cost.

Likewise, digitization would supply researchers with a vast wealth of information. With the proper privacy controls in place, such information could help researchers develop new procedures, medicines, and techniques. It would also allow potentially harmful cross reactions between medications and harmful procedures to be rapidly flagged and removed from the doctor’s toolbox. Ultimately, this would allow doctors the needed insight to refine their craft and focus on the most effective and helpful remedies.

The final, and by far the most challenging, aspect is to realign doctors’ incentives. Presently, the fee-for-payment system incentivizes doctors to perform repetitive and often useless procedures. With each test doctors receive more money in their pockets. A payment system needs to be developed that induces doctors to only run tests that are beneficial to a patient.

Harmonizing the incentives for a doctor to perform at his best with disincentives to go overboard is extremely difficult. However, some models already show promise. Institutions, such as the Mayo Clinic, are not only successfully but highly admired. Payment systems that are based on access to an institution’s resources, rather than per procedure can limit unnecessary expenditures. Alternatively, diagnoses can be detached from the testing and curing of illness. For instance, individuals could have one doctor, a so-called coordinator, who would evaluate a patient’s issues and then prescribe certain procedures or tests in which he has no financial interest. The tests and procedures would then be performed by other doctors on a fee-for-service basis. Naturally, legal regulations would have to be made to prevent procedure-doctors from unfairly influencing coordinator-doctors (as many pharmaceutical companies do today).

These three aspects are important steps that need to be addressed in any healthcare reform. While certainly only a start, they deserve far more focus than they currently receive. A solidly reformed system will only be successful by tackling the underlying costs of healthcare in America.

The discussion continues with Part IV: Get 'Em the Money.

The Right Medicine for Healthcare – Part I

With the Senate now beginning debate on a healthcare bill, it is time to step back and really think about where America could end up. The bills – and ideas – that are prevalent in Congress are devoid of commonsense. Under the current system of thinking, any bill, such as the current one on the Senate floor will be disastrous.

No one disagrees with the fact that American healthcare is in desperate need of reform. However, the current proposals do not offer good solutions. They attempt to patch a broken system without understanding what is not working. Like a charlatan doctor peddling a homemade cough syrup, they offer the wrong medicine.

The essential problem with America’s healthcare system is cost. Some may frame it in terms of accessibility – too many people do not have health insurance. However, accessibility is, in essence, an issue of cost. People that want, but do not have, insurance are precluded due to prohibitive prices. However, the present top-down approaches advocated by Congress do not address the fundamental cost issues. Instead, they attempt to make healthcare “more-affordable” by redistributing costs between different parties - whether taxpayers, the young, insurance companies, the poor, etc.

Not only is this a divisive and politically-charged (as we all know) approach, but it ultimately will fail to make substantial, lasting change. For instance, if insurance companies are simply forced to ignore pre-existing conditions, they will need to find ways to pay for these more expensive patients. This means either increasing premiums for everyone or lowering services across the board. In essence the current Congressional proposals create a zero-sum game, with clearly defined winners and losers.

What needs to be done is to develop a solid system of proposals that counter the inanity in Congress. America needs a reform that fixes the system and benefits all. The fundamentals of any successful reform rely on the mechanisms of the free market to create a cost efficient system. As Soviet Russia has shown us, centrally planned economies end in dismal failures. Regulatory bodies that determine maximum prices, public-options, individual mandates, and outrageous restrictions on private enterprise will not solve the problem, but exacerbate it.

Over the next few articles I will try to outline a few points that may serve as a rough skeleton for some detailed reform. In particular, (1) greater competition needs to be created between insurance companies by ending the employer based system, (2) medical costs need to be driven downward through tort reform, digitization of records, and realigning incentives, and (3) new financial instruments should be established to cover emergency room visits of the uninsured.

Ultimately, healthcare is a financial not a health-related issue. Insurance is one tool to make healthcare affordable. However, it is not the only, nor always the best way, to pay for healthcare costs. The desirability of health insurance is, and should be, an individual’s decision, based on relative risk and one’s financial situation. By failing to acknowledge and address these issues, Congress is suppressing true reform that could have a lasting impact on America’s future. The government should serve as an impartial referee, not a troublesome participant, in the realm of healthcare.

The discussion continues with Part II: A More Competitive Market.