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My grandkids periodically ask me about my work.  They understand that I am a heath care consultant and have worked in the health care world for my entire career.  They have overheard many discussions where I have talked about the broken health care system and that it needs to be fixed.  Recently one of them asked me the hard and inciteful question “So how would you fix health care Grandpa?”  Whether or not they believed I had the answer, or if they could understand how the system was broken, I responded.  This article summarizes much of what I said.  It then hit me, if I could explain it well enough that a child could understand, would it be possible for others, even those in Washington DC to understand?  I am hoping the answer is yes.

So What Needs Fixing?

I began by identifying several of the key problems with today’s health care system:

  • Today’s healthcare system is becoming increasingly unaffordable.  The US health care system is one of the most expensive systems in the modern world as measured by percentage of Gross Domestic Product (GDP).  Too much of our money is spent on health care (almost 20%).
  • Much of today’s health care system is inefficient resulting in higher than needed costs.  Patients are staying in the hospital too long. Patients are being treated in more expensive places than they need to be.  Patients are receiving treatment that might not be appropriate.  There is significant potentially avoidable care.  If this care was minimized or eliminated, the cost of care would be much less.  Many estimates suggest that as much as 30% – 40% of todays cost could be eliminated.
  • Today’s providers (i.e., doctors and facilities) are generally paid for doing things.  The payment system rewards more care, more complicated and expensive care and there is a tendency to do more than is required.  This is called the fee-for-service reimbursement system.  Although there is a trend towards an alternative approach (value-based reimbursement), only a small portion of the health care system uses this approach.
  • Today’s health care system has significant differences or variation in how care is provided.  In one part of the country patients are treated much differently than in other parts of the country.  For example, the length of stay in one area for the same condition is significantly different that the length of stay in another area.  This variation suggests a lack of quality in health care.  In manufacturing consistency is evidence of high quality.  Health care is plagued with inconsistency in approach, process and outcomes.
  • Much of health care is paid for by someone else.  It might be your employer, your insurance policy, the government, etc.  Since patients are protected from the biggest portion of the cost they are not strongly motivated to be good consumers.  They oftentimes don’t make good choices since they are so protected from the real cost of care.  They often don’t even know what that overall cost is.
  • Many patients aren’t invested in improving their health so they would consume fewer health care resources.  A significant portion of health care costs are directly tied to the patient’s lifestyle (e.g., smoking, obesity, diet, etc.).  Without the patient becoming more involved in improving their personal wellness, the cost of care continues to rise.
  • The health care industry doesn’t respond to typical supply and demand economic principles.  As the supply of providers increases, the demand for services similarly seems to increase, driving up the cost of care.  In other industries, as the supply goes up the prices tend to go down.  Unfortunately, health care doesn’t follow the traditional supply/demand model.  In communities with excess beds or numbers of providers, health care costs are higher than average or what they should be.
  • The structure of today’s health care system encourages over usage of the wrong resources.  We essentially have four different health care systems:
    • Individuals who are working and their dependents
    • Older individuals with Medicare coverage
    • Lower income individuals covered by Medicaid
    • Uninsured individuals
Those covered by Medicaid and without health insurance often don’t have an established relationship with a primary care doctor.  As a result they enter the health care system when they have a problem and usually through the emergency room.  This is expensive and in most situations could have been handled more effectively with a primary care physician, either by avoiding the problem altogether or by treating it before is became such a serious issue.
  • There is limited accountability within today’s health care system as to what are reasonable or fair prices to be charged.  Insurance companies and the government negotiate or set maximum payment levels for providers.  Usually these involve significant discounts from billed charge levels.  A major part of the health cost problem is the high level of payments to providers.  This occurs across the entire health care system.  To make matters worse, the government often has the lowest payment and providers offset that discount with requiring more payment from the insurance companies.  This is known as a “cost shift” and over time this has become significant.

This includes only a small portion of the issues plaguing today’s health care system; but this is more than enough for someone asking the big question.

So How Should We Fix It?

Experts have been trying to fix the system for decades.  Although some have had more success than others, the system continues with its inherent problems and society continues to accept the result while they continue to complain about the problems.  My solution for the fix might appear to be too simple but I sincerely believe this would take care of most of today’s problem.

I explained to my grandchild grandpa’s fix:

  • Start with affordability:  We have to do something to make the system more affordable.  We need to reduce the cost of health care.  Let’s do all we can to minimize, hopefully eliminate, the potentially avoidable care embedded in today’s health care system.  The best way to identify the extent of potentially avoidable care is to compare actual utilization patterns to best practice or ideal utilization patterns from the most efficient health care systems.  At work we have created this type of tool and we regularly compare this from systems all over the country.
  • We start by reviewing four key utilization items:  inpatient care, emergency room care, office visits, and outpatient pharmacy.  This quickly reveals if a problem exists.  Where there is excess utilization we know we have something to do and proceed to introduce care management practices that will minimize the excess utilization.  Studies have shown that two-thirds of what can be saved will be inpatient hospital related costs.  The balance of the savings is from outpatient and ambulatory care.
  • Do What You Can to Provide Appropriate Supply or Access to Care:  Since oversupply leads to over-usage and higher costs, it is critical to match the supply to appropriate demand.  The market’s popular movement to narrow network products (i.e., a smaller number of select providers in the network) is encouraging since this will usually lead to an improved health care system.  Identifying the best, highest quality, most efficient, reasonably costing providers will help produce a health care system with a reduced cost.  Focusing individuals to these highly desired providers will generate lower costs with greater patient satisfaction.  This will require patient education.  Whether or not patients have valid evidence to determine that they just have to go to a specific provider, they act as though they do.  In the past carriers have caved in to unreasonable demands without understanding the serious consequences of those decisions.  We need to match supply to appropriate demand.
  • Transition to Value Based Reimbursement:  Moving away from the current fee-for-service reimbursement system to one that establishes the appropriate incentives with the providers will lead to a lower cost system, one with appropriate utilization and excellent outcomes.  Most often this is associated with budget-based reimbursement incentives, rewarding providers for providing the most appropriate care in an affordable manner.  Experience has shown that most providers understand the need for this paradigm.  It is consistent with population health management principles and in essence introduces common sense business practices into the practice of medicine.  Once a provider understands the economic system behavior follows the money.  Sometimes the transition is painful, but in most situations results in high performing delivery systems.  As an aside, quality is convergent with efficiency.  The most efficient systems have the fewest malpractice claims.
  • Motivate Patients to Pursue Wellness:  In addition to the significant portion of health care costs that can be removed from the system for efficiency reasons, a similar large portion of care cost can be removed through improved health status.  Most of this is directly tied to how patients live their lives or personal patient behaviors.  For example, the key causes of avoidable conditions directly tie back to diet, exercise and monitoring of specific conditions such as diabetes.  The elimination of obesity, the strengthening of the body through diet and regular exercise, the ongoing monitoring of specific conditions will help patients become healthier and in many situations enable them to get off of many of the medications they are taking.  This is a challenging issue to deal with, but there is success just around the corner.  Personally, I have struggled with obesity issues most of my life.  Finally I have taken this issue seriously, although now with the help of surgery and I am off most of my medications and am pursuing a healthy lifestyle with great vigor.  I want to enjoy my wonderful grandchildren for as long as I can.
  • Eliminate the Payment Discrepancy Between Patient Type:  In my opinion, the best health care system is the one that doesn’t financially discriminate by type of patient.  Everyone should be subject to the same price to get the same service.  The elimination of the cost shift will be one good way to improve the overall system.  Perhaps Medicare reimbursement levels are the most appropriate levels to use.  Some proprietary studies have shown that setting prices at current Medicare levels for all patient types would lead to a system that costs no more than today’s system and would probably slightly reduce the cost of the system.  Yes this would increase Medicaid costs but would significantly reduce commercial costs.  A potential reasonable acceptable role of government would be the updating of what reasonable costs should be.

These five solutions are a start.  There are many more but as I often say I need a one hand solution, one for each finger.

Why Aren’t We Doing This?

This was the hardest question to answer to my grandchild.  Yes these are solutions that I believe are workable and would result in significant health care improvements and reduction in costs.  Yet few are focusing on the obvious.  So many are so polarized politically that they don’t find or try to find common ground to do something meaningful.  This isn’t a political issue and shouldn’t be one.  We have a serious problem begging for a solution.  Perhaps we should the advice of a very wise and well known spiritual leader when he said “unless you become like little children”.  My experience with my grandchild has shown me we need to simplify some of our ideas and get to work.

After all:

  • Children know where to go when it is beyond their control
  • Children always know to ask questions
  • Children focus on “both/and” instead of “either/or”
  • Children weep in response to pain and brokenness
  • Children don’t filter their words or put on masks to hide their emotions
  • Children aren’t constantly searching for the next big thing
  • Children don’t take themselves so seriously
  • Children aren’t afraid to act beyond their abilities
  • Children aren’t bound by reality.

If my grandkids understand it, why can’t the rest of us do the same.

About the Author

David Axene, FSA, FCA, CERA, MAAA, is the President and Founding Partner of Axene Health Partners, LLC and is based in AHP’s Dallas, TX office.