The cost of health care: insurance companies, high-profit and low value care

We know that health care in the US is incredibly expensive. Those who read about health policy from a variety of sources (perhaps including this blog) know this in terms of data – our per capita cost is 50% more than the second highest-cost nation (Norway), twice what most comparable (rich) countries spend, and almost 3 times that of the United Kingdom. But you don’t have to be a policy wonk to know that health care is expensive; you just have to be a consumer who is trying to buy health insurance and is seeing their premiums go up – and their out-of-pocket costs (deductibles, co-pays, co-insurance) go up as well. All those other countries cover everyone, equitably, despite spending so much less money (and those that spend more, like Norway, have especially good coverage). Not so here.

“My premiums are more than $600 a month, which is more than our mortgage payment,” a cancer survivor quoted by the New York Times in its August 14, 2016 article by Robert Pear “Health insurers use process intended to curb rate increases to justify them”, said. “I am grateful that the Affordable Care Act is here for my family, but I am disappointed by its limitations. All I want is a plan that makes our health care affordable, but it doesn’t exist.” She is likely to be disappointed, because this was not how the Affordable Care Act (ACA) was set up, and unless control of Congress changes dramatically, we probably will not see a fix. ACA passed because it guaranteed continued profit for insurance companies, and this has led to both the rate increases and out-of-pocket cost increases we have seen. Insurance companies can do this because the law allows them to ask for premium hikes when they are not making “enough” money. Essentially, ACA requires the American people (subsidized by the federal government if they are poor) to ensure private insurance companies are profitable. Because they believe that they have not been permitted to jack up rates “enough”, some companies (Humana, United, Ætna) are leaving the exchanges in many places.

While other counties make sure everyone is covered by some national health insurance (a national health service in the UK, a single-payer national health insurance system in Canada, and highly-regulated multi-payer systems in many other European countries such as France, Germany, and Switzerland), we have tried a patchwork that leaves many people out (e.g., the undocumented, poor people in the 19 states that haven’t expanded Medicaid), and encourages others to buy policies on the health insurance exchanges based solely on their cost. This is examined in a story by Reed Abelson in the Times from August 12, 2016, “Cost, not choice, is top concern of health insurance customers”. It notes that people who are healthy and young but don’t have employer-based health insurance are either buying the cheapest policies available on the exchanges or “particularly those not eligible for generous subsidies, are shunning plans altogether, finding all of the prices too high.” When they don't buy insurance, it messes with the insurance company model of offsetting costs for sick people with the premiums paid by healthy people, the reason for increasing premiums. And many other people, neither young nor healthy, are also buying the cheapest policy they can find because they can’t afford the cost (and maybe can’t understand the details); for these folks, it is not the insurance companies that pay the financial price, but themselves, when they get hospitalized or otherwise need costly care and discover that their “insurance” is inadequate (the technical term here is “crap”).

And this is just the health insurance contribution to high health care cost. Also very important is the cost of the care itself, particularly high-tech, high-cost care, provided to many Americans (at least those with good insurance coverage). This is driven, at least currently, by the fact that in most places, where insurance companies pay providers by piecework (“fee-for-service”), high-cost is also high-profit for providers, both individual physicians and the large institutional providers (hospitals and health systems) that often employ them. This blog, and a variety of exposés in many news articles including in the Times (particularly the work of Elisabeth Rosenthal) have given example after example of such incentives driving both the kind of care delivered and the cost of that care. In the worst instances, this is the result of rapacious greed that provides unnecessary care at very high cost. In many other settings, the opportunity for profit subtly (I hope) tips the scales toward providing high-cost, high-profit services rather than just as good, or almost as good, alternatives. But there are even more insidious drivers of cost; these are in the “everyday tests”, such as those done for screening, that in themselves, one by one, don’t seem to be excessive but multiplied by the number of people receiving them cost a lot (and make a lot of money for providers). The practice of ordering such tests is often driven by advocacy groups, providers in certain specialties and relatively small numbers of people with a specific condition who think everyone needs to be tested for it.

A good example is screening for lipid disorders (basically, high cholesterol) in children. Yes, some children have a genetic disorder which means that they should be tested and treated, but the vast majority do not and screening them (barring a history of familial hyperlipidemia or very early heart attacks) should not be done. It is not recommended by either the US Preventive Services Task Force or the American Academy of Family Physicians (AAFP), nor by the UK National Screening Committee. This example is discussed in an outstanding editorial in JAMA Internal Medicine by Thomas B. Newman, Alan R. Schroeder, and Mark J. Pletcher published on August 9, 2016, titled “Lipid screening in children: Low-value care”, preceded by the tagline “Less is more.” The authors contrast the USPSTF and AAFP recommendations to those of the National Heart, Lung and Blood Institute of the NIH, endorsed by the American Academy of Pediatrics, which recommends it. The authors of the editorial demonstrate the amazing lack of cost-effectiveness for this screening test, and note that is only because USPSTF does not consider cost-effectiveness that it gave the test an “I” (insufficient evidence to recommend for or against”) and not a “D” (recommend against testing).

But the most important point made in the editorial is that our recommendations for testing – and how to spend our healthcare dollars – are individually focused, and virtually ignore (and thus dramatically underfund) those interventions in public health and the social determinants of health that would truly make a major difference in the health of millions of Americans. The authors say it extremely well:

Tackling major public health concerns such as climate change, poverty, obesity, and gun violence is likely to yield high-value solutions, and many advocate policy and community-level interventions that might achieve such solutions. Meanwhile, other segments of our health care establishment continue to try to solve health problems by doubling down on individual-level health care solutions that tend to be low in value...The need for clinicians and leaders to focus on sustainability and health care value has never been greater, and it is likely that policy and community-based interventions will get us there much more quickly than adding more clinic-based interventions that have low value and are wasteful of resources and clinicians’ time.

We need to take this advice to heart. It goes way beyond lipid screening in children. It means supporting interventions that actually  improve the health of the public on a large scale. And, as always, “support” is spelled M-O-N-E-Y.

Health system woes, or whose benefit should we be focusing on anyway?

It’s not easy to be a big healthcare system these days, what with all the new rules and incentives for spending less money and providing less unnecessary care. Medicare is leading this charge, with a variety of efforts, mostly recently contained in the 2015 Medicare Access and CHIP Reauthorization Act, fondly known as MACRA. This law extends previous efforts by Medicare to encourage consolidation and “shared savings” (spend less and you get to keep some) through the creation of “alternative payment models” (APMs), most of which emphasize increasing prospective payment (paying in advance for a basket of services to be delivered to a population) rather than fee-for-service (paying for each service provided).

In some ways, and particularly in some places, such large health systems are well-positioned for these changes; because they are big and provide the whole range of healthcare services (or most of it), and because many of them employ physicians, they should be able to take advantage of the efficiencies of scale, as well as understand their comprehensive costs. Many of them are; Kaiser, especially on the West Coast, and other early-adopters of this comprehensive model. Other payers are following Medicare’s lead, such as Blue Cross/Blue Shield of Massachusetts.

Still, it’s hard to change your business model. When your health system has been designed for decades to maximize income from fee-for-service by hiring lots of specialists who provide services (often procedures) that bring in a lot of money and supplying them with the expensive facilities and equipment to do them, it is scary to think that this entire investment could move from being a profit center to a cost center, where each of these procedures just chips off money already received in capitation rather than generating new revenue. Plus APMs create incentives to spend less overall, and you have spent decades gearing up to spend more – with the expectation and assumption that reimbursement would more than cover this investment.

And if you are not on a coast, but in the part of the country where such changes are happening more slowly, and in fact are mostly still in the future and you’re still making money the old way, it is a very scary and risky proposition to change your business model completely. The analogy of when it is time to put your second foot in a canoe is an apt one. The dock is a stable place to be, comfortable and familiar, but the canoe can take you off to new, and maybe wonderful, places. But there is only a limited amount of time that you can keep one foot on the dock and one in the canoe before the canoe moves off and you end up falling in the lake.

One of the big concerns confronting such health systems is the degree to which they should invest in expanding primary care capacity. The argument for doing so, put forward by most consultants and experts, is that it ensures a patient base loyal to their system and referring in to their hospital(s) and specialists and providing a more comprehensive ability to manage the spectrum of care. The other option is to “double down” and be providers of only high-end, high-cost (and hopefully high-profit) care, with the assumption that the community’s primary and secondary care providers will see you as a beacon for their complex problems and refer their patients to you. This latter position is especially popular among academic medical centers, hospitals tied to a medical school and a faculty practice group, and is much closer to the advice given by the University Health Consortium, the organization of such hospitals.

Along with this is the question of how income might be distributed. Most of the incentives in MACRA and prospective payment are for primary care; in addition to direct reimbursements for primary care providers, the shared savings come from a higher percent of conditions being managed by primary care and not subspecialists, fewer hospitalizations resulting from greater continuity of care, and fewer referrals for imaging (x-rays and the like) of questionable necessity but easy availability (because the capacity for doing them has been overbuilt). Kocher and Chigurupati discuss these issues in their July 14 piece in the New England Journal of Medicine, “The Coming Battle over Shared Savings — Primary Care: Physicians versus Specialists”.[1] The main point of the piece is how specialty physicians will respond to their incomes decreasing – they suggest the options are defensive (fight it and keep doing what they are doing) or offensive (sell themselves as more able to contain costs especially for certain disease conditions). Of course, what works for some specialists may harm others; if, say, a pulmonologist caring for chronic obstructive lung disease is very efficient and their patients need less imaging and fewer admissions, it can hurt others.

The average American is not going to have great sympathy for loss of income for such specialists. The authors cite the mean income for primary care doctors as $195,000, about 4 times the average US household income, and average for specialists $284,000, significantly more but deceptive in that many specialist make 2, 3, or more times that. Thus a $35,000 reduction in income, which is what the authors use in their example, is likely to mostly concern these doctors. The authors also note that primary care physicians “…account directly for a small percentage of health care costs. Yet they substantially influence the total cost of care through referrals and directing of their patients’ subsequent care.” They are, or could be, cost effective, provided that there is not pressure from the system to increase referrals – something that has usually been the norm, and even touted by primary care physician groups who talk about “downstream revenue” generated.

Of course, nowhere in these discussions is the question of what is best for the health of the American people. Implicitly, MACRA and the ACA before it (with its creation of accountable care organizations or ACOs), are intended to increase both access to care and its quality (two legs of the “triple aim”), but arguably have been put forward by both the federal government (Medicare) and adopted by other insurers to achieve the third leg – lower cost. And for insurers, including Medicare, the concern is lower cost to them. The issues addressed heretofore in this piece and by Kocher and Chigurupati and by consultants such as the Advisory Board and organizations like UHS, are how healthcare providers (healthcare systems, academic and otherwise, physicians and other individual providers) can most effectively respond to keep from losing money, from having the cost savings for insurers come at a big cost to them.

The health of the people should be the measure. And it needs to be the health of all the people, the poorest and sickest and most vulnerable and most easily left off, not just the high-yield, high-profit generally healthy, well-insured person who needs a single procedure and has no complicating conditions. Indirect incentives that seek to modify behavior by not demanding that all necessary health needs be provided to all people and no unnecessary care be provided to anyone are all bound to fail. Societies are, or should be judged, not by how they care for their most privileged but by how they care for their most needy (see the FDR epigram at the top right of this page).

And nowhere is this more true than when it comes to the people’s health.

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[1] Kocher R, Chigurupati A, The Coming Battle over Shared Savings — Primary Care Physicians versus Specialists, NEJM 375(2):104-106, July 14, 2016