Health Care: The Gordian Knot

The Gordian Knot of Health Care: May 24, 2008

By William H. Wiese, MD, MPH

Dr. Wiese is Interim Associate Director for Health Sciences at the University of New Mexico’s Robert Wood Johnson Foundation Center for Health Policy

In order to even make it through the door for a medical care visit, a person needs to be financially covered for the service. In current parlance, that means having some form or insurance (or have some mandated or approved access such as needing emergency care or eligibility for sliding fee at a community health center). Without insurance, only a few can afford to pay out of pocket the full charges for much beyond the most basic or simplest of services. Most would find themselves simply unable to pay the full charges. The service may be rendered as charity care, or the provider may write off the bill, either before or after being referred to a collection agency. In most instances when a service goes unpaid, the un-recovered costs are passed along to other patients who are insured and can pay or to the taxpayer (The Kaiser Commission 2003).

An estimated 26% of the New Mexicans under age 65 are without insurance for at least six months out of the year (Chollet 2007). Over the course of a year, an estimated half of the population under age 65 years experience at least some time without coverage (Chollet 2007).

Not having health insurance and not having access to timely and effective health care are associated with adverse effects on quality of care and on health outcomes including death. This is well-documented and important (Institute of Medicine 2002, Families USA 2008).

In this brief essay, I am presuming that achieving coverage for all, or nearly all is a desired goal. Reaching this goal, however, has eluded political success, as demonstrated by the gridlock that blocked substantive progress in New Mexico’s 2008 Legislative session.

Meaningful progress may be akin to the fabled challenge to Alexander the Great that he untie the untieable Gordian knot. The famous Greek conqueror met the challenge by slashing the knot apart with his sword. What follows are some considerations pertinent to ever making progress and one fanciful (alas) idea for cutting through our Gordian knot.

An intractable problem?

Access to timely and effective health care is simply not available for increasing numbers of citizens. Locked into the present system, as we seem to be, the problems are worsening, not improving. The numbers of the uninsured are increasing. Payment for an episode of illness can be ruinous to families even with insurance. The present structures and operations of health care are extremely expensive and not aligned or adequately distributed to address the needs in the population. While the current structure of the market addresses the perceived needs of some, overall it has failed the public in terms of access, cost, quality, and outcome. Nevertheless, this current structure has incredible endurance and staying power.

Health care desperately needs fundamental restructuring with financial incentives and competition to encourage efficient and effective services that are accessible to all. The current open market system fails in this regard with its costly imbalance of specialized services, rewards for volume of care, care that is available to some but not all, inconsistent attention to quality, problems of duplication and outcome, and generation of an unremitting spiral of increasing costs.

Setting the stage – to whom is accountability owed?

The health care market has three components: (1) payers, (2) patients, and (3) providers. Payers are taxpayers, individuals, and employers. ∗ (Payers, as the term is used here, are not the insurers. Insurers hold/invest the payers’ money, accept risk, and reimburse providers of services). Except for patients paying out of pocket, payers are usually not the ones receiving services and have little say either in what services are provided or the price paid for those services. Patients are the people receiving, needing, or eventually in need of health care services. Providers include clinicians, hospitals, producers and vendors of equipment, pharmaceuticals, and a host of supportive personnel and entities. For our purposes here, the insurance businesses that hold the money and manage the insurance and financing are included in the “provider” category. In some instances the insurance businesses partner with provider systems, and risk-bearing corporations both hold the money (e.g., the premiums) and arrange for the services.

Public policy related to health care is (or ought to be) accountable to the patients for the care they receive and to the payers to assure value for the amount paid. While health care obviously requires a functioning and successful provider system, public policy has no a priori responsibility to protect and preserve provider interests.

Spiraling costs

Any plan for universal coverage that does not concurrently address the built-in spiral of inflation of the current system will fail. There will not be enough money to pay for it.

Multiple factors contribute to inflation of health care costs, some of which are unavoidable (aging population) and potentially beneficial (introduction of new technologies). Factors that distinguish U.S. health care from other developed countries are fragmentation, redundancies and unnecessary services (estimated as being as much as a third of all services) (Wennberg 2008), the preponderance of specialty services, the high price of services relative to cost of services and overhead (Reinhardt 2004, Anderson 2005).

These issues must be addressed and will require reconfiguring the reimbursement incentives. Our currently managed (or not managed) fee-for-service rewards the volume of services, most especially those at the highest price. The system builds in compelling financial incentives to attract clinicians into procedure-oriented subspecialty areas. Current reimbursement structures neither promote cost containment or efficiency nor reward quality of care or outcome (performance).

Hospitals in urban centers may compete in ways that inherently add to the upward spiral of total costs. An example would be investing heavily to add and configure beds and equipment and then marketing to patients populations around services that will generate increased revenue and the return on capital, revenues which will eventually be covered by “payers” – ultimately, that is, by the public. This may be socially justified if it provides needed facilities and services that are otherwise unavailable. Competition in the provider sector serves the public if it extends needed services, improves quality, and reduces costs. The justification becomes tenuous, however, if such investment results in redundant facilities and specialty services.

In many parts of the country, chronic disease (the single most costly segment of care within health care) and end-of-life care are demonstrably carried out with an excess of specialty services that do not result in better outcomes (Wennberg 2008). This excess of services can generate substantial and, in some instances, extraordinary profitability within our non-profit health care system (Carreyrou 2008).

Because the opportunities for reward are fewer, the market-driven system invests far less in primary care, prevention, and community-based outreach and services. Research shows that community settings that have relatively more primary care providers and fewer specialists have lower health care costs, better organization and less fragmentation of care, and better health outcomes (Grumbach 2002, Institute of Medicine 2002, Macinko 2007).

The inflationary spiral is felt across the array of payers and manifest regularly with deficits or shortfalls publicly financed programs such as Medicaid. In New Mexico, we have witnessed the sad inconsistency of the administration calling for universal coverage based in part on an expansion of Medicaid, while concurrently cutting back on Medicaid enrollments. The extraordinary demands for funding deplete the treasury, diverting resources away from needed services, not only in Medicaid, but also in public health, school health, even prison health, and away from opportunities to address the underlying social determinants of health through programs such as pre-K education or through other strategies such as minimum wage support and economic development.

Mandates

Universal participation is essential for universal health care. As long as there is the opportunity, some those who perceive themselves to be at low risk will take the chance and opt out rather than pay a premium. As that happens, the risk profile of those remaining in the pool is adversely affected, putting upward pressure on the price of premiums. This leads to more people with low risk opting out, and the cycle continues. As premiums rise, employers stop offering coverage or try to shift an increasing share of the costs to their employees, who, in turn, can no longer afford the coverage. This is pretty much where we’ve been heading, with a collapsing employer-based system and rising percentages of the employed population without insurance coverage. Without full or near-full participation in the risk pool and, by extension, in the financing, the financing for a system of universal coverage can not work.

For patients and payers, the word, “mandate,” is scary, connoting a loss of freedom. That a universally financed system might cost less (overall) is viewed by many who see themselves at low risk or otherwise unhappy about monthly premium payments with understandable skepticism. Proposals calling for “individual mandate” or “employer mandate” generate political pushback.

One might look to Medicare as an example of program with mandate for universal individual participation that has gained acceptance.

It is not surprising that mandates tend to be favorably viewed by the insurance companies and the providers. The insurance companies welcome the low-risk enrollees. The providers like having all their patients insured. In short, a universal system with its mandates will mean more money (lots more!) into the system. The spiral of costs climbs even higher. Such system of universal coverage will bankrupt the payers unless there are concurrent, major reforms that address cost.

Risk pools

Insurance carriers would prefer to enroll and retain the low-risk individual or employee group. One way insurance businesses compete financially with each other is to optimize risk pools with subscribers who are low risk. Using high premiums to drive out high-risk subscribers, whether individual or employer-based groups achieves the same purpose. Selectively seeking the low-risk subscriber, “cherry picking”, has the eventual effect of driving those who are sick or at greater apparent risk into risk pools that have higher premiums. This subverts the purpose of insurance (to spread financial risk) and has socially negative effects. It is a point of contention with employers, who come under pressure to make hiring decisions on the basis of health risk (Human Resources Management Study Group 2007). It penalizes individuals who, through no fault of their own, are sick or are at high risk. While recent legislation to limit denial of insurance to persons with pre-existing conditions may be salutary, competition to enroll people into insurance plans leads to cherry picking.



Currently, marketing of health care by insurance carriers and health systems is largely on the basis of price of premiums. Competition at this level (i.e., between insurers) can succeed only by either cherry picking, by increasing co-payments and deductibles or finding other ways to cut back (deny) payments, or by directing subscribers to low cost providers – none of which particularly serves the interest of the payers or the patients.

One approach to avoid these scenarios is to bypass the competition based on the marketing of insurance premiums. Large, consolidated risk pools, premiums that are independent of personal risk or group experience, and broad (mandated) participation together avoid issues such as cherry picking. This is what we have with basic Medicare. Payers and patients are better served in the long run when competition turns, instead, on the scope, quality, access, availability, and acceptability of clinical service and on outcomes.

Opportunities today — before universal coverage

The list of those calling for fundamental restructuring grows (Berwick 2003). It needs to proceed on behalf of payers and patients.

Health care services can be better aligned with needs and can be applied more efficiently and effectively, at lower cost, and with less fragmentation. System changes that limit the spiral of increasing costs must be a meaningful component of substantive expansion of health care insurance coverage — and should be in place before universal coverage. This will require restructuring incentives and reforms in the market place. The following are examples of areas and opportunities perhaps as demonstration projects that we can act on now:

1. Do whatever is needed to support the training, geographic distribution, and relative and necessary remuneration of providers of primary care. The goal is to have a medical home for every person or family as soon as possible.
2. Identify models for reimbursements to reward outcomes, quality, efficiency, and evidenced-based practices.
3. Open the financing to pay for systems and innovations that improve health outcomes at lower cost. This may involve, for example, more use of home health care and community outreach workers.
4. In particular, open the reimbursement for the management of chronic disease to support an integrated system of care rather than confining care to a sequence of medical visits.
5. Pay for clinical preventive services that work.
6. Limit reimbursements for services where price greatly exceeds cost.
7. Support (require) shared information systems that reduce wasteful replication in diagnostic testing and promote quality improvement.
8. Promote pooled purchasing practices and sharing of drug formularies wherever possible.
9. Promote shared access to major capital investments and limit capital investments that are not geographically appropriate and cost-effective for the public.
10. Eliminate cherry picking by insurance carriers by mandating large risk pools and enrollments independent of medical history or risk.
11. Promote competition among providers on the basis of access, acceptability, cost, quality, and outcomes.
12. Assure that payers and patients who purchase care and must choose among providers have access to clear and standardized information concerning costs, history of premium increases, medical loss ratios, administrative overhead, scope of benefits, and information regarding access, quality, and outcomes.
13. Assure that public health is appropriately supported to address safety net services and population issues around prevention and reduction of incidence rates of new disease.

Systems changes, including those listed, need to be evaluated for effectiveness and cost. This is the role health services research and policy analysis.

The Gordian Knot

For years, efforts of health care reform have been able to penetrate only the edges of the problem — ineffectively picking away at the Gordian knot, a strand here, a loose end there — with limited progress toward universal coverage and little impact on controlling the unchecked spiral of costs.

Substantive proposals to restructure the financing either have been met with overwhelming resistance as the vested stakeholders mobilize (Harry and Louise 1993) or managed in ways that ultimately protect their interests. With over six billion dollars that flow in New Mexico from payers to providers to finance services for the under-65 population (Chollet 2007), it is not surprising that provider groups work to influence politicians to protect and preserve their financial interests (Common Cause New Mexico 2007).

Without question, reform requires public input and the oversight and approval of both executive and legislative branches of government as conditions for public regulation and financing. The details and technical nuts and bolts of health care reform, however, should be the assigned responsibility of some form of a mandated authority. Optimally that authority is guided by accountability to those who pay the costs and to all of us who need the services and is shielded from disproportionate influence from stakeholders with financial interests in maintaining the structure and operations of our present health care system.

This is not to say that provider interests are unimportant. The health care managers bring to the table essential experience and technical and administrative expertise needed to inform the process and needed restructuring. Furthermore, today’s clinicians and facilities will be needed to assure the availability and provision of services under any form of universal coverage. Nevertheless, public accountability must go first to the payers and patients.

With the multiple and often conflicting interests, can we actually move beyond tinkering at the edges of the problem — move beyond gridlock? The sword needed to cut through the Gordian knot will be the sword held by whoever figures out how to keep vested stakeholders from controlling the decisions. Legislative responsibility is to focus on the macro-issues of prioritizing the streams of public financing, assuring access to services, and assuring accountability. Planning for the structure, process, and technical details should fall to an independent body in the form of an authority appointed on behalf of payers and patients.

So far, no Alexander has emerged with that sword. In default, we have financing reform caught in political process that remains largely under the influence of stakeholders in the provider system. Meaningful health care reform, accountable to the payers and patients, continues to languish.

Footnotes
1 Even though I classify employers among the “payers”, more accurately, it’s less the employers that pay than their workers, who accept health benefit in lieu wages, and the public that pays for the increased costs of goods and services the companies pass-through to consumers (Emanuel 2008).

2. Since the market area for professionals is a least regional, limiting reimbursements in any one state will be a challenge.

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