Who and What Drives Health Costs?

Ask the right question to find the right answer.

Peter F. Drucker (1909-2005)

Is it specialists? After all, they order the tests and perform the procedures that drive up costs.  They admit patients to hospitals,  where true high costs lie.  They self-refer to imaging centers and specialty centers they own.   They accept speaking fees from drug and device companies to promote products. Yet you never hear the expression “Specialist-Driven Health Care.” Why? Because the public likes  specialists.

Is it the specialists-primary care mix?  After all, unlike most other nations, whose costs are half ours.  Two thirds of our doctors are specialists.   Everybody knows in nations where most doctors practice primary care, costs are lower.  Is it combination of both, since neither specialits or primary care doctors often know the cost of the procedures or drugs they prescribe? Or is it simply the “fragmented system,” where one doctor does not what the other is doing, who lack “coordination,”  who order duplicate tests?

Is it the trial lawyers who force doctors to practice “defensive medicine,”  by ordering every test and performing every procedure to avoid the feared question from a malpractice attorney,”Why didn’t you do this or that, doctor?”

Is it the hospitals? After all,  hospitals  house marketing departments that lure patients to hospitals where the high-cost, high tech, sometimes robotic surgical  care is delivered?  Their most profitable “product lines” are driven by orthopedic surgeons,  cardiovascular,  oncology, other surgical, and imaging  specialists. For every dollar spent there, 90 cents goes to the hospital, only 10 cents to the doctor.

It is  health plans?  After all, they  cover some 200 million Americans, and they set the fees and pay for the care.  Surely they should share some of the blame for the administrative costs of care, which represents 25% of all health costs.

Is it government?  After all,  government accounts for 50% of health costs,  and government, in concert with the AMA and RUC (Reimbursement Update Committee)  sets the codes by which physicians are paid.   Or is government the answer?  Costs are lower in countries with government-controlled care.  Still,  no one talks of government-driven care?  Why not?  Because that would smack of “socialized medicine,” whick the majority of Americans abhor.  Trouble is,  of course, premiums are doubling under Obamacare and individual markets are beginning to suffer “sticker shock.” No, more government is not the solution.

Is it “market-driven”  health care?  After all, everybody knows markets are fickle and uneven and reward those with enough money to afford care.  One way to reign in markets, of course, if for government to act and pass a health reform law “The Patient Protection and Affordability Act.” 

Finally, is “consumer-driven care” the problem?   After all,  Medicare patients with chronic disease go to six or seven specialists each year.   Besides,  because of the entitlement mentality and comprehensive coverage by third parties,  consumers do not know the true costs of care, and why should they? They do not pay bills out of their own pockets.

According to Regina Herzlinger,  a tenured professor at Harvard Business School,   consumers may be the answer – not the problem . In a series to classic books – Market-Driven Health Care (1997), Consumer-Driven Health Care (2004), and Who Killed Health Care? (2007), she explains  consumer hold the key to a rational health system.  She identifies the “killers” of the system as the dysfunctional health plans,  empire-building hospitals,  “one choice” employers,  congressional control by our elected politicians,  and our academic “elite policy makers.”  

Her answer?  Let medical business entrepreurialism  bloom,  let information flow.  And here is her formula for bold laws that make consumer-driven care happen for the benefit of all.

1)      Require everyone to buy his or her own insurance, using tax-sheltered income.

2)      Have government help those who cannot afford to buy health insurance by subsidizing them.

3)      Allow providers to bundle care as they want to and to quote their own prices.

4)      Have government require publication of data on the performance of all providers.

5)      Risk adjust all prices- the sick account for the bulk of health costs; make covering them in a cost-effective fashion attractive financially.

Tweet:   Consumer-driven care, in which consumers and physicians have “skin in the game” and are sensitive to costs, will lower health costs.