Analysis: How private purchasers can help control healthcare costs

Healthcare Dive is reporting that “More than three in four Americans expect healthcare costs to increase over the next few years and result in ‘significant and lasting damage’ to the U.S. economy, according to a survey by nonprofit West Health and Gallup. And 69% were ‘not at all’ confident policymakers will fix the situation. Given the choice between a 10% increase in income or a complete five-year freeze of healthcare costs, 61% of people said they’d choose the latter, in line with the almost half of Americans concerned that a major health event would lead to bankruptcy for their family.

In the past year alone, 12% have borrowed money to pay for care and 10% had foregone treatment due to cost. And this fear over costs is affecting people at every rung of the socioeconomic ladder. West Health and Gallup found the concern wasn’t just unique to people struggling financially — it was consistent up to the top 10% of earners. Political debate over fixing this problem has centered of late on drug prices, surprise medical bills, pre-existing conditions and lowering insurance premiums, which are rising faster than income.” On a related note, the New York Times is reporting that Americans borrowed $88 billion dollars to pay for healthcare last year.

Takeaway

Let this fun fact sink in…in 2017 there were 17 states/territories whose Gross State Product was less than or equal to $88 billion. And yet that’s the amount that was borrowed by consumers in 2018 to pay for healthcare. This borrowing occurred despite the fact that the uninsured rate in the United States was less than 14% which is still low historically. I tend to share the pessimism of those surveyed on the cost control front. Senator Lamar Alexander (R-Tenn.)  intends to introduce a bill aiming to control healthcare costs later this year. (As a side note, HFMA submitted a number of suggestions to Senator Alexander as to what this might look like based on our Price Transparency, Total Cost of Care, and Value Project work).For it to be politically viable in the current environment, it will be watered down. If we’re actually going to control healthcare costs, private purchasers (employers) need to demand increased value from hospitals, physicians and health plans. And if those demands aren’t met, employers need to be willing to carve providers out of network or find alternative TPAs who can deliver value, where feasible. The U.S. auto industry didn’t start building a decent car until American consumers voted with their wallets for Nissans, Toyotas, Hondas and Subarus. Even though healthcare is “different,” I’m not sure it’s rational to expect plans and providers to behave any differently than GM, Ford or Chrysler. To that end, I’m becoming more convinced that the employers are as big a barrier in “getting to value” as they allege some providers to be. I had the opportunity last week to speak with the CFO of an “aligned, integrated health system” (the system owns hospitals, physicians and a health plan). The system has consistently demonstrated value to its employers and community. The CFO wants to move to full capitation across all his commercial insurance contracts. However, what’s frustrating is he can’t move his employers (or their brokers) to this model for a variety of reasons. And so, another opportunity to improve value is frittered away due to multiple layers of mis-aligned incentives.