This piece is the last of a four-part series (see parts 1, part 2 and part 3). on improving the nations healthcare while reducing its cost.  Earlier we discussed who can obtain health care coverage, what service coverage should be included and how pricing should be handled.  In this segment, we review some scams that increase the costs that consumers face: cost-shifting, malpractice games, and offshore drug pricing.  As well we look at some cost-reducing movements underway.

Government has been a major factor in increasing health care prices.  It increases the prices everyone else pays to health service providers through cost-shifting, and it increases the taxes we must pay to offset the subsidies it ladles out to its favored beneficiaries.

Government demands huge “take-it or leave-it” discounts from physicians and hospitals for the services given to Medicaid and Medicare patients.  This has been going on for decades.  The health service providers recover those discounts by jacking up the “rack rates” paid by individuals and hiking the “wholesale rates” paid by big insurance companies.

E.g. in July 2011, a Medicare beneficiary went to a clinic with severe flu symptoms.  The clinic charged $212.00 for services (its rack rate).  Medicare offered $129.33 which the clinic accepted (39% discount).  The patient’s Medicare “gap insurance” paid another $32.33 (15% of total).  The patient paid nothing.

E.g. in another clinic, in July 2011, the same patient was charged a rack rate of $140.00 Medicare paid $82.62 (41% discount) and the “gap insurance” paid 20.66 (15% of total).

For those who pay nothing for health care, Government’s cost-shifting may feel benign.  For everyone else it means higher out of pocket costs.  In the proposal, government is entitled to a volume discount geared to any documented efficiency it delivers (in administration) for the service providers – but it is not entitled to discounts related to its powers of clout and retribution (interactions with IRS, FDA, DoJ).  Government cost-shifting should be limited to documented efficiency.  Likewise, insurance company discounts should not exceed the efficiency they deliver to providers.   These proposed “green eyeshade” measures will decrease the prices that consumers pay directly.

Malpractice lawsuits are a massive waste of the health care dollar.  Tort lawsuits cost 1% of health spending ($27 billion per year) and are responsible for another 4.7% ($124 billion/year) in “defensive” medicine.  “Defensive medicine” is the ordering of extra tests and procedures that are not required by the patient’s condition but are required to insulate the physician from accusations of medical malpractice or inadequate treatment.  Malpractice attorney talking-points include platitudes about making health treatment safer, but clearly their aim is to become very rich on their 1/3rd share of lawsuit winnings.  While victims of inappropriate treatment should have a right to sue, awards should be limited to actual damages, court costs (the loser pays) and a cap on pain and suffering (e.g. $100,000 or less).  So far, politicians have not restrained the cottage industry of trial attorneys.

In the proposal, legislators must scrap the malpractice gravy train (cap on pain and suffering, and loser pays court costs), and physicians are not off the hook.  They need to stop wasting 5% of health costs on CYA behaviors such as “defensive medicine,” and at the same time, physicians and hospitals need to address the 44,000-85,000 U.S. deaths of each year from iatrogenic illness, (illnesses acquired as a result of medical error, drug interactions, hospital–acquired infection, etc.).  The cost of iatrogenic illness treatment is $35 billion per year of imbedded costs borne by consumers.  ACA advocates claim 1.8 million of those injuries and 60,000 deaths could be averted.  But those adverse outcomes do not automatically justify invasion by the malpractice pirates.  Instead, the public deserves unbiased review by medically competent specialists.  There’s no value in the deeply emotional frenzy that malpractice attorneys whip up to influence judges and juries.

The AMA conducts medical peer reviews where skilled arbiters assess the care given to the patient.  If the AMA wants to retain its control over the practice of medicine and see malpractice suits brought under control, it needs to do more medical peer review, remove deficient practitioners and most of all, it should publicize the results.

Patents on pharmaceuticals and medical devices offer copycat protection to manufacturers who invested resources to invent or refine new technologies.  The patent allows manufacturers to set a higher than competitive price, but it is not a license to treat American consumers unfairly by setting a higher wholesale in the U.S. than they set for outside the U.S.  In this proposal, U.S. consumers should not be denied access to the lowest “high price” the manufacturer sets for an equal volume.  If the manufacturer refuses to offer U.S. consumers his best price, then the patent protection can be rescinded.  In the wake of patent protection loss, the consumers can benefit from another manufacturer making a competing “generic” version of the product.  The government does not need to set prices, nor should it grant pricing advantages to a firm that discriminates against U.S. consumers.

Electronic health records (EHR) are used by 35% of physicians now and will be the norm for documenting the patient’s treatment plan and history before the end of the decade.  In an EHR, handwriting-error is greatly reduced, medical coding and charging can be automated, and patient records are ready for consults on treatment.  Administration costs can be reduced through EHR, and the costs associated with pursuit of inappropriate treatment plans can be cut.   From EHR gear, there are additional benefits such as faster communication among treatment teams, coordination of referrals, and highly relevant in-service training for health professionals.  If EHRs are required for large institutions that participate in government-paid and insurance company-paid services, the uptake of EHRs can be accelerated and health care costs reduced.  Rand estimated $80 billion in yearly EHR cost savings, but recent studies say that some doctors order more tests because EHRs make that so easy to do – perhaps defensive medicine is showing its ugly head.

An aging U.S. population and the one-in-six who remain uninsured are increasing the demand for health services, but the supply of health professionals does not appear to be keeping pace.   The successful experience with nurse practitioners and other specialized non-physician health care providers suggests a way for the U.S. to add capacity to meet health care demands.  Widespread EHR availability should readily accommodate the physician “supervision” that the AMA arrogantly thinks is needed.  No doubt the AMA will see consumer benefits from increasing the supply of professionals.

And finally, the walk-in clinics sprouting up at Walmart and other big-box stores cut 30% to 40% off the cost of the same service rendered at a doctor’s office.  These clinics are often run by a nurse-practitioner.  Patients seem pleased with the service and delighted with the convenience.

The proposals above are intended to provoke discussion on ways to cut the cost of health care for consumers.  We welcome other perspectives that can promote the same goal.

Alan Daley is a retired businessman living in Colorado who follows public policy from a consumer’s perspective.