Eric M. Huebscher is the President and CEO of Huebscher & Co.
He has over 30 years of management experience in with a specialized emphasis on healthcare operations, finance and regulatory compliance and oversight.

5 2012

Health Care Reform: A Pragmatic Approach

ABI Health Care Committee News / Volume 9, Number 3 / July 2012
by: Eric Huebscher

Editor's Note: This is the third in a series of articles on health care restructuring efforts by a wide range of health maintenance organizations from across the country. This article addresses several sensible initiatives in an attempt to avoid the continued insolvency rate in health care services industry.

In the first two articles, I examined the spiraling cost of health care and the attempts made by insurance organizations to reign in those cost by shifting expenses to the insured. I also examined the insurance company tool of requiring referrals and authorizations in order to receive specialty care. I believe that it is clear that neither of these concepts resulted in the expected outcome, as evidenced by Centers for Medicare and Medicaid Services' (CMS) cost projections. The outcome was not a reduction in expense but rather, an increase in the administrative burden and cost to providers of care, as well as an exponential expansion in the type of insurance products offered to the public. The health insurance choices we have today are so varied and complex that in some instances, they require trained professionals to explain the benefits to the consumer. This trend is not helpful and only confuses an already complex decision-making process.

I also previously discussed the potential impact on the overall health care industry from enacting the Obama Healthcare Reform Act (the "Act"). The Act's main concept is to expand coverage to those who currently do not have insurance, the so-called "mandate." The Act goes on to further define how the cost of this expanded coverage will be funded through a number of untested cost-savings initiatives. In a previous newsletter article, I wrote that the chief actuary for CMS stated in his white paper on this topic that the savings assumptions contain significant risk and uncertainty. The Act also suggests that those who do not comply with the mandate would be subject to a financial penalty. The Act appears to possibly encourage or in some instances, force entry into an already inefficient and cumbersome system. As of this article, the U.S. Supreme Court[1] is considering the constitutionality of the mandate. Early reports suggest that it may be struck down in whole or in part based on core elements of the U.S. Constitution.

What is the answer? The answer is not to encourage or fund existing care patterns via expanded coverage but instead to flank the issue by addressing the expense root causes. Health care can be broken into three logical categories. Category 1 is catastrophic care (to paraphrase former U.S. Secretary of Defense Donald Rumsfeld, "the known unknown" and can be better defined as care to those who regrettably encounter significant trauma, e.g., a car accident. In these instances, each member of society expects to receive the best care available, wherever that event may take place. In my opinion, there is no way to effectively limit these events and so our health care policy should not be structured to address these events.

Category 2 is known and potentially avoidable high-cost disease modalities. This category includes, among many others, hypertension (high blood pressure), which leads to cardiac and related vascular disease; diabetes, a major contributor to vascular and ophthalmological issues; hyperlipidemia (unacceptable levels of cholesterol), which also leads to cardiac heart disease; and asthma in children.

Category 3 relates to end-of-life care (commonly known as hospice, palliative or terminal care). In the latter, the U.S. has not embraced end-of-life care in the same way as other developed countries and that in turn, leads to high-cost care being delivered with little or no prospect of benefit.

A more careful review of those costs under Category 2 reveal that if we were to address the core issues causing these modalities, the result would be a meaningful reduction in the overall expense to the nation. Hypertension and the related medications cost Americans in 2010 $93.5 billion.[2] Diabetes and the tangential impact on society are estimated annually to cost in excess of $173 billion.[3] Hyperlipdemia—the leading cause for coronary heart disease—costs Americans annually $200 billion,[4] and asthma, mostly in children, costs $18 billion annually.[5] There any many other disease patterns that could be quantified, but these alone account for more than $500 billion (or 20 percent) of the overall $2.6 trillion that is the nation’s health care bill.[6] Clearly, these are staggering figures that should be at the heart of any practical approach to healthcare reform. In other words, why would we want to encourage bad behavior only to result in bad outcomes?

Historically, various government agencies and commercial insurance companies have piloted programs in disease management around these specific issues in an effort to drive down costs and encourage behavior that limits further disease expansion. These programs have not had the desired results, either because they were not expansive enough or because the benefit to the plan sponsor outweighed the benefit to the patient. There should be laws (federal and state) enacted that work to control these costs at the root cause. What if there was an adverse health tax on food that did not meet certain standards? What if your projected Social Security benefits were indexed to increase with improved health scoring (the converse would apply as well)? What if providers of care (physicians and hospitals) were incentivized in a meaningful and easily measurable manner for positive results? These are only a few suggestions. But if you recall, when taxes increased on packs of cigarettes, it resulted in a sustained decrease in the number of smokers and related diseases. This further confirms the need to address the cause of increased healthcare costs, not expanding care to those that drive up the cost.

In 2010, the Medicare system paid $55 billion for the last two months of care, bigger than the budget for Homeland Security. But it is estimated that between 20 and 30 percent of this expense had no impact on life expectancy.[7] Other developed countries have a greater acceptance to a more measured approach to end of life care than the U.S. As a society, we lean toward a demand for doing whatever can be done, without a careful and sensible evaluation of the related benefits. I am not advocating a "pull-the-plug" protocol in all instances, but there is a clear void between the realizable and practicable results of administering more care during one's final days. More education and resulting acceptance might go a long way in further introducing this concept and saving unnecessary expense.

It is clear that if we further expand coverage to the masses without reducing the root causes of increased healthcare spending, we will encourage our current poor behavior and health choice patterns. This misguided approach will likely result in further financial and operational stresses in the healthcare marketplace and increase the risk of failure and potential insolvency. This article only addresses a small sliver of areas for consideration. Without a clear paradigm shift on how we treat ourselves, the system will be broke!

The fourth article will discuss the impending U.S. Supreme Court decision regarding the Obama Healthcare Reform Act.

Next Article:

U.S. Supreme Court and Health Care: Proper Forum for the Reform Debate?

  1. Huff Post; June 18, 2012
  2. Heidenreich PA, Trogdon JG, Khavjou OA, Butler J, Dracup K, Ezekowitz MD, et al., Forecasting the future of cardiovascular disease in the United States: A policy statement from the American Heart Association. Circulation. 2011; 123:933-44. Epub 2011 January 24.
  3. American Diabetes Association, Economic Cost of Diabetes in America, June 2007.
  4. American Heart Association. 1997 Heart and stroke statistical update. Dallas: American Heart Association, 1997.
  5. "The Costs of Asthma," Asthma and Allergy Foundation 1992 and 1998 Study, 2000 Update.
  6. Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, National Health Care Expenditures Data, January 2012.
  7. "The Cost of Dying, End of Life Care," CBS 60 Minutes, August 2009, Updated August 2010.


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