As Americans celebrate or cower watching the release of executive orders and federal funding freezes that may well change their lives, state legislatures are meeting across the country, and health care is a high priority. State action will be essential if we are to preserve affordable access to high quality health care for all — rich or poor, urban or rural. But to move forward wisely, we first need to understand the scope of the problem, how we got here, and what states can and should do to preserve what is possible and advance needed reforms.
Imagine being in pain and having to be your own doctor because you can’t find a primary care physician. Then going to the emergency room because it’s the only place where you can’t be turned away, even though you know that the bill could make you one of millions of Americans with medical debt. Then fast-forward to having to fight with your insurance company to get the follow-up care your doctor recommended.
Unfortunately, this is the current reality for many: 100 million Americans lack adequate access to primary care (twice as many as in 2014). A recent study found that two-thirds of 27 million annual ER visits for privately insured patients could have been treated in primary care settings — and that these ER visits cost an average of over $2,032. That’s more than 12 times the $167 it would have cost to be treated in primary care (and perhaps by someone who knew the patient). About one in four Americans have debt due to medical care, and for 39% of them, an ER visit was the cause. No wonder almost three quarters of Americans worry about health care affordability.
Less obvious harms affect us all. High and rising health care spending leads to lower take-home pay, less competitive businesses, higher taxes and governments that have less money to invest in the research and services needed to improve population health and well-being, like education, affordable housing or public transportation.
To oversimplify a lot: Market failure abounds in health care. Markets work to improve value when buyers can judge the quality of the product, multiple firms offer it and individuals pay for it.
Health care is a different beast. Misinformation abounds. Specialists have narrow expertise and often unconscious bias: When the same cancer patients saw surgeons and radiation oncologists, their recommended treatment differed. Monopolies are pervasive in health care. Research shows that 90% of hospital markets and 57% of insurer markets are too highly concentrated to support meaningful competition. That means fewer options for patients as well as higher prices — often more than twice as much as what Medicare pays. This lack of competition also results in poorer quality. It is, actually, your money and your life.
And it is an understatement to say that health insurance makes things complicated. For example, a reasonable co-payment might help people be more discerning about what kind of care they get and where they get it, but co-pays may be harmful to poor people, especially if they are sick. And high-deductible plans don’t work well: People skip necessary care when they are paying for it out of pocket, and they are likely to get unnecessary care once they hit their deductible and care is free.
Plus, there’s the balloon problem. When you squeeze a balloon in one spot, it expands elsewhere. If you’re a monopoly, you can raise prices. Providers can deliver more unnecessary, low-value care. Insurers under pressure to keep premiums low, can shift costs to us, whether through high-deductible plans or by refusing to reimburse for care. The pressure on the part of providers and insurers to expand has only grown as health care has become financialized — a system focused on making money. In such a largely for-profit system, where quarterly earnings are top of mind for the C-suite, firms seek as much revenue as possible. While most large insurers are for-profit firms, as are 36% of hospitals, many nonprofit hospitals have adopted the aggressive moneymaking tactics of their for-profit peers. Private equity is the largely unregulated canary in the coal mine of for-profit behavior, having moved aggressively into health care over the last decade, often increasing costs and harming patients.
More than 100 years ago, states began to realize that public utilities were rife with market failure. Now, all 50 states (and the District of Columbia) have public utility commissions charged with ensuring that residents have an affordable and reliable source of electricity. We argued in a recent commentary in the New England Journal of Medicine, that states should establish comparable agencies to achieve a similar goal: affordable, high-quality health care for all.
That goal may appear wildly unrealistic in the face of the cuts to federal funding proposed by the new administration. But we believe that states face a choice. They can either ignore their most vulnerable populations or apply the principles and approaches we recommended to eliminate waste and low value care within their health care systems and use the savings to improve access and affordability for all.
Build a foundation in data to evaluate performance and drive improvement. You can’t manage what you don’t measure. To be effective, these agencies need to have comprehensive data on how the money flows in health care and how the quality and cost of care varies across payers and providers. (Actually, providers and payers also need this information). The agencies also need the resources required to identify the many sources of waste in health care (which experts estimate at between 25% and 50% of U.S. spending) and to design approaches to improving performance. Accurate and unbiased analyses can help push back on misinformation and the flawed assumption that more is always better.
A case in point: the “cost shift.” Hospitals have long claimed that they must charge higher prices to commercial insurers because of underpayment by Medicare and Medicaid. With good data, however, economists refuted this “economically flawed” claim. In fact, when public insurers reduce their rates, commercial prices fall as well.
The data also shows that hospitals in competitive markets can make money on Medicare by keeping costs down, while hospitals in less competitive markets increase their costs (e.g. higher administrative costs) and pass them along to consumers through higher commercial prices.
Set spending targets and work collaboratively to achieve them. Economists have long called for stabilizing health care’s share of the U.S. gross domestic product. With solid data states can begin to identify opportunities and strategies for reining in spending growth. Eight states, including Rhode Island, Oregon and Connecticut, have put in place a collaborative process to do so by establishing a spending growth target and doing the hard work of laying out a plan for achieving that goal. This includes identifying the concrete steps that hospitals, health plans and other key players in the health care ecosystem can take on their own, as well as the policy changes needed at the state level — and, ideally, collaborating with federal partners to overcome current barriers to successful health system reform. As California has shown in its recent work on all-payer alignment to improve primary care, public-private partnerships, often led by employer coalitions, can play an essential role.
Address market failure. But regulation will still be needed to preserve markets where possible and address monopoly power, whether this shows up as quality failures, unjustified prices or resource misallocation. Because hospitals remain the largest single component of U.S. health care spending, we recommend that states implement hospital global budgets, which can include requirements to reduce excess administrative expenses and invest in primary care and population health. These can also include an enforceable hospital budget for the year achieved by automatically adjusting prices as volume rises or falls.
Maryland has implemented such a comprehensive approach to hospital global budgets that has had a substantial impact: a 16% reduction in preventable admissions, a 2.5% decrease in overall Medicare spending and improved quality of care. The good news is that several additional states are considering how best to test this approach, including Vermont, Connecticut, Hawaii, Rhode Island and a number of counties in New York state.
Strengthen primary care and reform physician payment. Hospitals don’t make decisions about how best to care for patients, doctors do. As we pointed out earlier, primary care in the U.S. is in crisis, and access is inadequate. Because strong primary care is the essential foundation of a high-performing health care system, state health care agencies should develop a plan for ensuring that all of their residents have access to affordable, high quality primary care. Ensuring sufficient investments are made in primary care is an essential first step.
Many states are requiring insurers to increase payments to primary care practices — and Rhode Island, an early leader, has more than doubled the share of spending going to primary care. Value-based payment to physicians, most notably in the form of Accountable Care Organizations, can help, as these are intended to align physician incentives with the goal of improving quality and reducing costs. According to the Congressional Budget Office, the ACO payment model has been effective, especially when physician-led and/or primary care-focused.
Many of the reforms that we recommend will be opposed by those who benefit from the current system. They have the focused self-interest and deep pockets to ensure their voices are heard, while the rest of us lack the time and resources to show up. (This is known as the collective action problem.) As described in New York University economist Thomas Philippon’s chilling book “The Great Reversal: How America Gave Up on Free Markets,” the rich and powerful have succeeded in changing the laws and regulations governing health care — and other sectors of the economy — to favor their interests. All legislators, even those who hope to serve the public, are now overwhelmed by the flood of self-interested information and campaign contributions from corporate interests.
To make this a fair fight, legislators and the public need trustworthy, nonpartisan information on the current system and how to improve it. In the Green Mountain State, for example, this is provided for them on energy policy by Vermont’s Regulated Utility Planning Division. Not only do they develop evidence-based plans for how to improve Vermont’s energy systems, they also show up at regulatory and legislative hearings to represent the public good. States should have a comparable planning entity for health care.
And rather than simply pushing back on the health care balloon, we should aim to shrink it. A 2016 simulation model found that investing in a portfolio of health-improving initiatives, including stronger primary care, value-based payment and investment in education (and others), could within 20 years have a profound impact, reducing the share of the population with chronic illness by 20%, lowering health care costs by 14% and improving the productivity of the workforce — measured as the value of wages — by 9%, a huge economic gain for employers and communities.
We believe that a well-designed and adequately resourced state agency is our best opportunity to protect the most vulnerable in our states, lay out a path to an even better future and shift the current balance of power toward the public good.
Elliott S. Fisher, M.D., MPH, is a professor of health policy and medicine at the Dartmouth Institute for Health Policy and Clinical Practice.
Alena Berube is a Ph.D. student at Dartmouth who also works part-time at the Green Mountain Care Board in Vermont.
This article was originally published on usnews.com and is reprinted here by permission.