The United States continues to face two massive and contradictory health care problems. The first is that millions of Americans lack health care coverage, placing health care expenses out of reach for the nation’s poor. The recently passed Affordable Care Act (ACA) works to address this problem. According to Congressional Budget Office (CBO) forecasting, the ACA will reduce the number of uninsured Americans by about 30 million in the coming decade. Whatever your opinion on the ACA, it does take steps to reduce the number of uninsured by expanding health care to more Americans.
The second problem is that American health care costs are out of control. The United States ranks second in the world in health care spending per capita, with expenditures of $8,608, bested only by Switzerland, which spends $9,121. Switzerland, however, ranks in the top ten internationally in health care efficiency, meaning the Swiss get a good “bang for their buck.” The United States ranks 46th out of 48 surveyed countries, and according to Bloomberg News, “among advanced economies, the U.S. spends the most on health care on a relative cost basis with the worst outcome.”
The United States is unlikely to lower health care spending per capita unless its health care systems implement structural changes to move away from the fee-for-service model — a system by which health care providers are paid for each service performed. This model encourages physicians to provide additional, possibly unnecessary treatments, and it provides doctors with perverse incentives. Doctors should be paid for the quality of their work, not the quantity. But because of the fee-for-service model, doctors are encouraged to order more tests, schedule more office visits, and perform more surgeries. This drives up health care costs.
Researchers around the world have found the fee-for-service model leads to inefficient health care spending. A 2010 study of Chinese health services found inappropriate incentives resulting from China’s fee-for-service model have lead to in “rapid cost increase, inefficiencies, poor quality, unaffordable health care, and an erosion of medical ethics.” This last point is crucial. A physician has a financial incentive for his or her patient to return for treatment. But the patient would only return for treatment if he or she were sick. Ethical obligations mandate that physicians provide the best possible care for their patients, in hope that they heal and do not have to return. But under the fee-for-service model, financial incentives encourage physicians to see their patients as many times as possible, creating a conflict between their moral and monetary motivations.
The fee-for-service model also fails to emphasize or incentivize preventive care. The lack of preventive care and health education in America leads to the proliferation of ailments such as diabetes and heart disease. A shocking 8.3 percent of the American population (25. 8 million people) has diabetes, and that figure that could rise to 33 percent in 2050 if current trends continue. The economic cost of treating diagnosed diabetes is $245 billion per year, a figure which will rise as the number of Americans afflicted by this disease rises. Investment in preventive care and health care education could cut spending on preventable diseases like diabetes, but under the fee-for-service model, there is no financial incentive for health care providers to provide such care. Better to treat the diabetes after diagnosis, when the patient is already afflicted.
Not all health care providers in the United States follow the fee-for-service model. Providers such as the Mayo Clinic and the Cleveland Clinic operate with a “pay-for-performance” model. Under this model, perhaps best known as “integrated care,” there is a high degree of collaboration among health professionals, leading to a sharing of information among all professionals involved in the care of the patient. Studies show this coordinated care can produce approximately 50 percent cost savings compared to fee-for-service programs. This cost reduction comes from the smarter, better care that is associated with physician collaboration. It also stems from the payment model often utilized in integrated care models, where patients pay a flat fee for their hospital visits and medical expenses, incentivizing doctors to provide the most economical care.
One drawback to integrated care is that doctors under this system demand extremely high salaries, since they are not paid by the service. And lower salaries would discourage students from studying medicine, resulting in a shortage of doctors.
Because American health care providers are predominantly private, there is no feasible legislation that would mandate a switch to integrated care. Instead, politicians should place political pressure on the fee-for-service model, publicly lauding the Mayo Clinic and other integrated care providers, while encouraging fee-for-service hospitals to adopt integrated care. Congress could also pass legislation granting tax breaks or Medicaid reimbursements to health care providers that practice integrated care.
The transition from the fee-for-service model to an integrated care model must be gradual. Because so many existing health care providers operate under the fee-for-service model, a sudden switch to integrated care would be a logistical nightmare. A United Healthcare brief spells out a blueprint for how providers might realign their contracting models. The brief emphasizes a “gradual ramp-up” over several years.
Integrated care is not a complete solution, but it does offer incentives that have the potential to drive down health care costs in America. Innovative health care providers should not be afraid to shift to an integrated care approach, and experiment with ways to make patients healthier at a lower cost.
John Connolly is an Opinion Columnist for The Cavalier Daily. His columns run Thursdays.
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