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Thursday, December 11, 2008

How Public/Private Health Care Reform could work

My company's CEO delivered a presentation outlining the future that market-based health care faced against an incoming blitzkrieg and panzer attack of regulation and unsustainable rising costs. He had spent a few days in Washington DC and came back with encouraging news about how the Obama administration is viewing health care reform. The other highlight of the speech was watching him take the lord's name in vain twice which is funny only because we work in a Catholic health care organization and there was a nun in the audience.

The regulation comes from all the reform efforts. The unsustainable rising costs has been increasingly described with the "b" word as in bubble. The specific rising costs in health care have been from specialists and hospitals and the bubble comes in the form is that the services provided are being viewed as overvalued for the price. Eventually, payers will have the information to demonstrate how they are overvalued and/or the ability to refuse to pay and prices will come crashing down. While I do sound like a cranky health insurance guy when I called hospital services overvalued, I can point to the Dartmouth studies which show vast variation in care by geography that defies science and a pricing system that is based on what hospitals feel they need to get paid rather than any real costs. One dirty secret of hospitals is that they are not very good at pricing how much their services actually cost. Here is the most interesting aspects that I can share from the presentation (besides how to make a nun blush).

What the government is good at: The government is really good at determining the price of health care services or how much everyone gets paid. For Medicare and Medicaid, prices have been determined for decades of how much physicians gets paid, how much hospitals get paid, and how much health plans get paid. They are adjusted be geography, health acuity, and have risen at the same rate as inflation if not lower. The government actuaries determine the costs, adjust them, and everyone in the health care world accepts them because they have all the data. The government's ability to dictate price will probably grow as they have proven to be very good at it. Insurance companies and providers are not good at it because the biggest player in the game just tells everyone what they will be paid and others have no leverage to counter it.

What the private sector is good at: Health plans and providers are good at managing how much health care people use or utilization. Health plans have case managers for members with chronic diseases, use authorizations to not pay for inappropriate care or makes providers demonstrate why the care is appropriate. Providers will also enter into contracts where they get paid for managing care, keeping their patients healthy, or receive bonuses for following quality of care standards. The government would not be good at managing care because it is best done at the local level and it's also something that the government has never done. New expertise would have to be built from scratch.

Myth around drug negotiations: A common reform effort is that Medicare should negotiate prices with pharmaceutical companies. However, Medicare has no ability, staff, or idea how to negotiate prices. They can dictate a price (previous point) but do not have the history, data, or staff to negotiate since they have never done this in the past. Medicare negotiating with drug companies would be similar to my negotiation attempts with my cat.

Popping the bubble: Health care was the only sector that did not lose jobs in November and one in seven jobs in this country are in health care. If we reduce the money spent on health care (lower costs), jobs are going to go away at some point. I start to wonder if I should update my resume. However, if the Obama health care reform results in losses of thousands of health care jobs that are not absorbed by the private sector, I think that the administration knows better than to pursue that approach. Health care spending can be a good thing if there are good outcomes and the bubble can be eased by lowering those costs and allowing more people (the uninsured) to receive care. The total dollars will not dramatically lower but be spread out among more people.
With technology and health care investment, if reimbursement drops because everything is paid at the same rate, some investment may leave health care because the returns aren't there. However, that investment will then look for other sectors of the economy with better returns.

The Brothers Emanuel: Ezekiel Emanuel has been working on his own plan for health care reform and advised numerous democratic candidates. I had the pleasure of seeing him speak about his health care voucher plan and I could not find anything that it did not address. I adopted his plan as my own and wondered if it was going to happen. I think that Ezekiel's brother, Rahm Emanuel, might be able to make it happen in Rahm's new position as Barak Obama's Chief of Staff. I think that if we want to know where health care reform is going, we should listen to Ezekiel.

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